Committee Reports > List of Committees > Joint > 1981 > Committee on State Sponsored Bodies > Report No. 16 - Nitrigin Eireann Teoranta

MIONTUAIRISC NA FIANAISE

(Minutes of Evidence)

Déardaoin, 2 Deireadh Fómhair, 1980

Thursday, 2 October, 1980

Members Present:

SENATOR EOIN RYAN in the chair

NÍTRIGIN ÉIREANN TEORANTA

Professor J. P. O’Donnell, Chairman; Mr. G. T. Paul Conlon, Managing Director; Mr. P. McSweeney, General Manager; Mr. F. Crumlish, Assistant General Manager—Finance; Mr. C. Gowran, Assistant General Manager—Development; Mr. F. McCoy, Assistant General Manager—Personnel; Mr. F. P. Hoey, Factory Manager, Marino Point and Mr. J. B. Hynes, former Managing Director, of Nítrigin Éireann Teoranta, called and further examined.

Chairman.—I am sorry for the delay. Our preliminary discussion took longer than expected. We were dealing with the escalation of costs last day and we had got to a point where costs had reached £80 million.

Professor O’Donnell.—Before we start I wonder could I be permitted to refer to several points that came up the last day?

First of all, there were some questions put at the last day’s hearing, particularly by Deputy Desmond, about the technical and financial expertise of the Company’s staff who were involved in the Arklow Gypsum and the Marino Point projects. I must say quite categorically that the Board rejects any suggestion that our staff members lacked the competence to evaluate projects, to assess contractors or to manage construction contracts. We consider that the history of successful plant contracts at Arklow in the period since 1965 and the qualifications and experience of the individuals concerned will bear witness to their competence. We will hand the Chairman summaries of the curricula vitae of the persons concerned to date.

The second point that came up last week which I mentioned briefly at the end was the question of penalty clauses which formed part of the Company’s contract. I may have given the impression that there were no penalty clauses of any kind. That of course is not the case. Mr. McSweeney will explain what the penalty clauses were and what aspects of the contract are covered and the magnitude of them in money terms.

Third, at the later stages of last week’s hearing the question of industrial relations at Marino Point was raised and Mr. Hoey had begun to deal with this subject before the hearing ended. I am sure the Committee will appreciate that delay in completion of this contract was one of the principal factors which led to the escalation of the costs of the project. Delays were of course due to a number of factors but a very important one among them was the problem of industrial relations. We have, in our submission, written fairly extensively on the whole construction history of the project and on the industrial relations problems and we are very willing to discuss this in more detail if required.

Finally, on the question of cost escalation we have information on substantial cost escalation and delays in a number of comparable projects both at home and abroad in recent years. We think it important that the Committee, in arriving at its conclusions on this whole investigation, should take note of these examples and we will give the Chairman, with his permission, a brief document summarising some of these and we will be happy to talk on it if the Chairman wishes.

Chairman.—You will give us a memo on it.

Professor O’Donnell.—Yes, but I am sure it is something that would probably come up in the course of the discussion. Mr. Gowran will talk on it in detail and will give an explanation of the data.

433. Chairman.—I think the Committee might like to deal with some of the points. For example, we would like to deal with the penalty clauses. You say somebody will be able to tell us about them.

Professor O’Donnell.—Mr. McSweeney will be able to tell you about them.

Chairman.—This is a matter we would like to have cleared up, so perhaps, we could have your comments on that.

Mr. McSweeney.—The contract, which you no doubt have, is a comprehensive document which is quite common, in our experience, for this type of undertaking. The penalty clauses are related to what is feasible under the contract. They do not remove the right to proceed to a legal case if one feels that one should do so to obtain satisfaction. The purpose of the penalty clause is to cover one in respect of what one would describe as the actual specification not being achieved in a marginal respect, so there has to be some solution to the problem where one is looking for 95 per cent and one gets 93 or 94 per cent or something like that. That is what the penalty clauses are for and the purpose is to force the contractor to do the job right. They are not a substitution for law but to put a penalty on the contractor for not finishing it off properly. I have a brief statement on the actual penalties. Penalties are provided in the contracts in respect of deficient work, defective equipment and failure to meet performance guarantees. Under the first two headings of deficient work and defective equipment the maximum liability of Kellogg under the contract is £75,000 Sterling for the ammonia unit and 300,000 Dutch guilders for the urea unit. On the performance guarantees the penalties cover plant capacity, cost of utilities, the quality of the product, size of prills of urea, effluent and noise and the liability on each item is specified. By that I mean that there are different liabilities associated with all these items. The highest liability is where we talk about the quality of the ammonia. There is a liability there of £300,000. All those liabilities are not cumulative so the total liability of Kellogg obtaining under the contract for the headings that I have described, which is deficient work, defective equipment and failure to meet performance guarantees, is limited to £300,000 for the ammonia plant and 1.4 million Dutch guilders for the urea plant. In addition it is normal in a contract of this kind to have retention money and it was found that the least expensive way to do it was to provide a bank guarantee in lieu of retention money. This bank guarantee is for a maximum of £350,400 sterling and 1,181,400 Dutch guilders. These moneys would be drawn down against certification by a director of NET that such payments were properly due in accordance with the contract and that provision is still in force. That money would be used in respect of any failure by Kellogg to meet a guarantee situation or a warranty, at our discretion. It was about to be drawn down on one occasion but, in practice, if it was drawn down it could be repayable eventually and it would become part of a dispute about implementation of the penalties. As we are still in a contractual situation with Kellogg I cannot give you a final answer on the ultimate position with regard to penalties because that would arise after plant acceptance has taken place. We are very near the position of plant acceptance because the plant is now working normally. But formal plant acceptance has not yet taken place. It is only then that one would decide on this particular clause of the contract.

434. Senator Cooney.—You mentioned that the document was a common type of document. I understood that it was a special contract negotiated for this site. Is that so?

Mr. McSweeney.—I meant that the types of clauses in this particular contract are common to the chemical industry. Certainly each contract is its own contract. But the provisions incorporated here are not unusual in terms of their scope. However each contract would still be its own contract.

435. Senator Cooney.—By whom was the initial draft contract drawn up, by you or by Kellogg?

Mr. McSweeney.—It was drawn up jointly between ourselves and Kellogg.

Mr. Gowran.—By NET.

Mr. McSweeney.—We prepared the first draft.

436. Senator Cooney.—So it was by NET. This contract was for a project that was novel in this country in terms of technology. What advice had you with regard to the terms that were desirable in a contract to deal with a project of this magnitude?

Mr. McSweeney.—In the normal way we deal with that type of contract directly with our legal people in regard to checking out a contract we might make. But in this case we had engaged consultants about whom Mr. Gowran will tell the Committee.

Mr. Gowran.—We engaged Scientific Design Company Ltd. of London to advise us when we were drawing up the job specifications and the draft agreement for the contract to which we are referring. In their London office this company has specialised in consultancy on ammonia and urea projects around the world. They have handled a number of projects similar to that at Marino Point in places like Bangladesh and Indonesia, principally for the World Bank. We had their engineering director and a senior project manager work with us during our preparation of these documents which we sent out for tender.

437. Senator Cooney.—Therefore the initial draft presented by NET was drawn up in consultation and with the advice of these specialist consultants?

Mr. Gowran.—Yes.

438. Senator Cooney.—Was the draft accepted largely or were there many changes made in it by Kellogg before it was signed finally?

Mr. Gowran.—Naturally there were a number of changes made. Some were very minor. Some involved a great deal of discussion and necessitated referral back to our consultants and legal people before agreement was finally reached.

439. Senator Cooney.—Were the changes proposed by Kellogg acceptable to your consultants?

Mr. Gowran.—Yes, because they were similar to changes that had to be made in similar contracts elsewhere. Naturally when we prepared our draft document we were looking for the absolute maximum we could get.

440. Senator Cooney.—Could you indicate to us some areas where there were changes from the maximum you sought? For example, take the penalty clauses.

Mr. Gowran.—We did seek penalties on completion which just were not acceptable to the contractor. He would not undertake responsibility for delays which would be outside his control.

441. Senator Cooney.—But I understood that the initial draft as drawn up by the management consultants was based on their experience in regard to similar type projects in other parts of the world. I assumed from that that what you would have proposed would have been the norm in this type of contract in other parts of the world. Therefore why did you feel you had to accept less from Kellogg for this one?

Mr. Gowran.—We did not accept less from Kellogg for this one. We tried to get more from them but we did not accept less.

442. Senator Cooney.—Therefore what you are saying is that the penalty clauses in this would be the same as penalty clauses in this type of contract entered into in other parts of the world?

Mr. Gowran.—Yes. We deal with that in our submission.

Professor O’Donnell.—It is important to remember that while there are basic forms of contracts — for example this is a copy of Model Forms of Conditions of Contract drawn up by the Institution of Chemical Engineers, a copy of which we have submitted to the Committee — this is one that is used very widely as a basis for drawing up reimbursable contracts. It would simply set out the broad forms of clauses which might be incorporated in or form part of a contract. While it would form the basis of an individual contract such as NET’s, if one were to look from one contract to another, one would find variations between them. In some cases perhaps a certain clause included here might be omitted altogether. In other cases the magnitude of the penalties might be bigger in one contract than in another. In our case it is true to say that in the original draft form of contract which NET submitted to Kellogg we incorporated a penalty-bonus clause, that is, a clause which would have penalised them for late completion and given them a bonus for early completion. That kind of clause is mentioned in this draft form. However there is a series of explanatory notes at the back of this document which point out that in fact the implementation of such a clause in a reimbursable contract is extremely difficult and may be left out. One would have to examine the particular conditions obtaining at the time and in the place where the contract was being drawn up to judge whether or not the omission of such a clause was reasonable. In this case, given the time at which the contract was being negotiated, with rapid escalation, with difficulties about procurement of equipment and given the place that the plant was being built in these islands — where conditions are known to be very difficult in relation to labour problems and so on — the simple fact is that Kellogg were not prepared to accept such a clause in the contract.

443. Deputy L. Lawlor.—How valuable have the penalty clauses been? What redress have NET under the headings outlined that made up the penalty clauses?

Professor O’Donnell.—As Mr. McSweeney mentioned we have not in fact invoked any of these clauses so far. They are all alive in the sense that they are available to us but we have not yet applied any of them in this case because we are still in a contractual situation with Kellogg. They are still doing work for us so we have not done so up to now.

444. Deputy L. Lawlor.—If you are getting to the taking-over situation many of the aspects would have come under the penalty clauses and one would expect you would have invoked them by now and had correspondence on the record with Kellogg. Do I assume that if you sign for the plant now you do not propose to follow up on any of the penalty clauses?

Mr. McSweeney.—It arises at the point of acceptance. It comes up at that point.

445. Deputy L. Lawlor.—Have you redress vis-à-vis payments made?

Mr. McSweeney.—Within the limits of this clause we can take our decisions now as to what we want to do on our side of the fence about it. But now is the time when we are about to accept the plant.

446. Deputy L. Lawlor.—Have you formulated the areas regarding which you will pursue Kellogg under the penalty clauses?

Professor O’Donnell.—We have not yet informed Kellogg explicitly, no.

447. Deputy Deasy.—Am I correct in saying that most penalty clauses do not include a liability on a contractor to complete the work on schedule?

Professor O’Donnell.—That is right. They do not include that liability.

448. Deputy Deasy.—The fact that the work was not completed on schedule was a very costly item. Was it not?

Professor O’Donnell.—It was. I accept that. If you like I can quote the notes to this particular form of contract. It draws attention to the difficulties of managing to achieve a penalty such as that in a reimbursable contract. It is a very difficult thing to do and one certainly could not achieve it without having a corresponding bonus clause. If the contractor saves time he is paid a bonus but even with that carrot it certainly is not always possible and in recent years has proved quite difficult. If you check on other contracts you will find that it is not always a feature of a reimbursable contract.

449. Deputy Deasy.—Also in the penalty clause there was no liability on Kellogg to keep their costs within a maximum limit?

Professor O’Donnell.—No, that is true. There is no liability on the contractor to keep the total cost of the project to a fixed sum. That, again, is a kind of penalty which is extremely difficult to command in a reimbursable contract.

450. Deputy Deasy.—But were they not two very major factors in the escalation of costs?

Professor O’Donnell.—They were. I do not at all deny that. The fact is that in a contract of this magnitude, being drawn up at the time and at the place that it was, in a sense we were in a cleft stick situation. Desirably, from the point of view of a company like NET probably the best way to get plant of this kind built would be by means of a fixed price contract where the contractor would undertake to build the plant for a fixed sum of money, subject to escalation clauses, of course, being retained. However, that type of contract has not proved to be available for projects of this kind. Contractors simply will not agree to that because there is too much risk in it for them. If they wish to avoid that risk, they will have to quote a very high fixed price, to protect themselves from the risk of serious loss. They have taken the attitude on large contracts that the only way they will deal with you is on a reimbursable contract basis.

451. Deputy Deasy.—Do you not agree that you should have tried a little harder to get a more binding contract?

Professor O’Donnell.—Well, I shall leave it to my colleagues who were involved in the negotiations to answer Mr. Deasy’s question, but I know that they tried very hard.

Mr. McSweeney.—We had three main contractors in the end and they were all very determined that they were not discussing anything but a reimbursable contract. We were free to go worldwide. But they were not interested.

452. Senator Hillery.—When you prepared your draft contract for discussion with Kellogg, did you at that stage draw up a contract with a maximum limit on cost and with the requirement of meeting the work on schedule?

Mr. McSweeney.—The original presentation to the Board was on the basis that the Board would authorise us to go for a reimbursable contract, because no other type was available. The reimbursable type contract meant that we would fix the payment to the contractor for his services and we would then, with him, buy all the equipment and that is what we did.

453. Senator Hillery.—Did the advice of your London consultants, who have international experience in this area, conform to what you eventually did?

Mr. McSweeney.—Yes. That was the general practice. It is also the way it is done by other companies in the British area as you will be aware.

454. Deputy B. Desmond.—You signed a reimbursable contract with Kellogg, and you also signed a fixed price penalty clause with Kellogg. Could you explain how the two are compatible?

Mr. McSweeney.—The penalty clause is always related to the contractor’s own profit and we are talking about his total cover. In this case, it is about 10 per cent and that is really what is common in contracts, as far as my experience goes.

455. Deputy B. Desmond.—Surely the value of the Kellogg contract would appear, on the outturn, accepting a total cost of £137 million within the totality of the contract, to be about £100 million? The Kellogg contract finished up with a total value of £100 million to them — £99.8 million to be exact.

Mr. Gowran.—Mr. Chairman, that is not true. The amount of money which Kellogg got at the end of the day was £6.3 million. The rest of the money was on a reimbursable basis for the equipment, erection and sub-contracts and that was at cost.

456. Deputy B. Desmond.—But did not the total amount of that expenditure come to £100 million?

Mr. Gowran.—£98 million.

457. Deputy B. Desmond.—Within the terms of your contract with Kellogg, it would appear from what you said, that you had a £300,000 penalty clause on the ammonia plant and a 1.4 million Dutch guilders penalty clause on the urea plant. I am just asking for a comment from you. I am not suggesting that the plant was in any way deficient in this case, but I am querying the value of the penalty clause that you agreed on a fixed price basis in the context of the terms of your total contract with Kellogg.

Mr. Gowran.—The penalty has to be related to the amount of money which the contractor himself is getting and the contractor was being paid for his services, his design, engineering, procurement and supervision services which was the £6.3 million. The penalties have to be related to the amount of money which the contractor himself is handling.

458. Deputy B. Desmond.—I come back to the point I am making. If the ammonia plant were not given final acceptance — supposing a major fault developed — what comeback against Kellogg have you now got?

Mr. Gowran.—We would go to law.

459. Deputy B. Desmond.—Go to law against whom?

Mr. McSweeney.—Against Kellogg.

460. Deputy B. Desmond.—Have they not got a penalty clause?

Mr. Gowran.—I know.

Mr. McSweeney.—It is within the contract.

Professor O’Donnell.—You could do one of two things in that situation. If the fault were such that it came under one of the categories that Mr. McSweeney listed for which there are penalties, then the limit of what you could recover would be a sum stipulated in that penalty. If it were a fundamental failure, as Mr. Desmond put the case of a plant which simply did not work, that would be a failure of so significant a kind that you would have to go to law against the contractor and pursue him for a fundamental breach of the contractual conditions. In that situation, all his financial limitations of liability would go to the wall.

461. Deputy B. Desmond.—Is there anything in the contract relative to that?

Professor O’Donnell.—There is not.

Mr. Gowran.—There is not, but you do not give away your right and we have used that right in other cases.

462. Chairman.—Would you take action against Kellogg or against the actual firm that supplied the equipment?

Deputy B. Desmond.—How would you take action against Kellogg or their sub-contractors? I am wondering how protective is the contract in that context.

Professor O’Donnell.—It does not protect you. No contract that you could achieve would protect you for your total loss in that situation. Again, this is a standard feature of a reimbursable contract — indeed, of any contract — that penalty clauses are related to the fee which is paid to the contractor. That might be of the order from 5 to 10 per cent of the contractor’s fixed fee. In our case, the contractor’s fee is of the order of £6 million and his maximum liability was £600,000 so that is about 10 per cent. It is very typical. I have a document here which contains some notes on a United Nations Industrial Development Organisation form of contract. Again, we have submitted a copy of that form of contract to the Committee. There are some guide notes that they mentioned. I would emphasise that this is a draft form which was not accepted at that stage by contracting firms. With reference to penalties the notes say: Article 22 and 23 limit the liability of a contractor to the penalties stipulated. Liquidated damages of up to 10 per cent of the contractor’s fixed fee are provided for in certain situations. The point I am making is that it refers to the contractor’s fixed fee. You do not find penalties stated with reference to the total cost.

463. Senator Cooney.—Were Kellogg themselves the suppliers of any plant or buildings?

Professor O’Donnell.—Of individual items, no.

464. Senator Keating.—I want to recap very briefly to see if I understand this correctly and then I will ask a question. The total Kellogg got out of this whole project was £6.3 million. I am translating Dutch guilders at four to the £1 which means that on the ammonia plant there was a £300,000 penalty and on the urea plant £300,000. That is a total of £600,000, which is approximately 10 per cent of their profit. I am calling it a profit. There were £90 million of costs which passed through their office and were passed on to NET for payment. I do not know what the norm is, and this is what I want to be told. How are those costs invigilated? Is it never affirmed but understood that there is a percentage for a company who go to a supplier and say: “If you give me that maybe I will supply it on a 5 per cent discount and you will get the 5 per cent”. To put the question in a more general way, do a contracting firm like Kellogg who provide both a design and a procurement facility have any incentive to let costs escalate and pass them on to the client on the basis that they have some minor but unofficial percentage interest in the total cost?

Mr. Gowran.—Under the contract everything was paid for at cost.

465. Senator Keating.—How do you know? How can NET verify that?

Mr. Gowran.—We had to verify all the bids that were submitted by the contractor and we had to sign all the cheques that were issued by the contractor. Any discounts were available to the client and not the contractor.

466. Senator Keating.—How does a client know that there is not some form of agreement between the procuring agency and the supplier which contains an advantage for the procuring agency? What is the mechanism internationally for validating that process?

Mr. Gowran.—We were purchasing equipment on a worldwide basis. Major items of equipment might have six possible suppliers worldwide. Their information would be presented with all the necessary backup documents. They would have a recommendation from the contractor on who should be the supplier. They would be scrutinised by our engineers and we would either agree or disagree with the recommendation of the contractor. That is how the thing operated.

467. Deputy B. Desmond.—Where, for example, a major power station is being constructed, say, for Saudi Arabia, at a cost of, say, £400 million, the client would be the Saudi Arabian Government. The ESB in Ireland would get a commissioning contract which might be worth £2 million or £3 million to the ESB. The clients are dependent on the commission they pay their consultants to ensure that the contract is brought into commission. In effect, you were the clients and Kellogg were the consultants for £6 million. They were also arranging the capital contract costs which totalled, in the end, £100 million. You then had to verify that. Does that strike you as being normal commercial practice?

Mr. Gowran.—It is normal practice in our business, in the chemical industry, that plants are built in this fashion.

468. Deputy B. Desmond.—Is it not normal practice for clients involved in capital expenditure of that nature to have the consultants double check?

Mr. Gowran.—We had a team of people in the contractor’s office in London, a team of competent engineers scrutinising what the contractor was doing at all times, and vetting all this information.

469. Chairman.—Were they your own team?

Mr. Gowran.—Yes.

470. Chairman.—What part did the Scientific Design Company play? Were they advising on that?

Mr. Gowran.—During the course of the contract we had Scientific Design available for consultancy. We had them on a retainer during the course of the contract.

Professor O’Donnell.—They were not involved in the direct invigilating procedure during the time when we had a team in the London office of Kellogg. If you are asking whether there was a Scientific Design Company man on that team, there was not.

Mr. Conlon.—Even if you employed consultants you could not have a 100 per cent watertight system. In effect, what we are talking about is backhanders. One must rely on the international reputation of the people one is dealing with.

471. Senator Keating.—From what has been told to the Committee, it would appear that if Kellogg are simply in receipt of a £6.3 million fee they have no incentive to pad the price charged by the original suppliers. If we turn it around the other way, what incentive have they got to keep the price down? Let me amplify that very briefly. Here is a situation where NET have a contract with Kellogg and the word goes around the world to a very small number of potential suppliers of some of the basic plant that this thing has gone so far that it is irrevocable. We know you cannot stop in the middle and we are not blaming you for not stopping. What is the mechanism which stops half a dozen or a dozen telephone calls talking place saying: “We have got these fellows by the hasp. Let us hit them to the ground because in the end they cannot go bankrupt which is a normal private sanction. In the end the Government will pay.”?

Mr. McSweeney.—The result of the whole thing was that what was paid for the equipment — and we are now talking about equipment — was within 5 per cent of what was originally estimated.

Professor O’Donnell.—Was Senator Keating suggesting some arrangement in the form of a ring and that the producers of one particular item of plant, say, a compressor, would get on the telephone to four or five others in the world and say: “We will make a ring on this?”

472. Senator Keating.—I would expect that that was likely. We are not talking about motor cars where the competition is intense. We are talking about things which are produced in very small numbers by a very small number of manufacturers. I would expect at least a possibility that a ring would form against you once a contract of this size was known to be proceeding. I was wondering what mechanisms a State company possess, because bankruptcy is the great sanction in other private commercial contracts. We are concerned with the wider issue of State companies. What kind of mechanisms have been or can be devised to give protection in this area?

Professor O’Donnell.—One of the reasons we chose a firm such as Kellogg was that they built a large number of plants of this kind and have very good and comprehensive cost data on various items of equipment. At the outset they would have a pretty good estimate of what a particular item of equipment should cost. If there was any gross rigging of price by a group, certainly Kellogg would pick that up. If we come to a situation where a group got together to rig a price to an extent that was not gross, we come back to what Mr. Conlon said. In the final analysis we had a team of staff scrutinising all data. We insisted on not just taking one single bid; when we got a number of bids they were discussed with the staff of Kellogg. We could hire another consultant but what expertise would he have that we do not have already to detect the kind of activity that is being considered? We come back to the confidence that has to be placed in a firm.

473. Deputy L. Lawlor.—The point here is that the consultant was your contractor also. That is where the complication arises. Normally one hires a consultant to vet three or four different bids but in this case the consultant was acting as main contractor. If Kellogg were tied to the £6.3 million fee, we could assume that due to the long delay in the project they lost heavily on it. The second point is that the design work and the detail that could go into a project like this could quite easily be carried out by the contractors knowing they were in a strong position to get the business and save the design people in Kellogg doing that work. This is an area where Kellogg could have saved costs by negotiating with specialist contractors to do work on their behalf which would be a saving in their costs of £6.3 million. In the future, with the experience gained in this contract, would you ever get involved in that kind of consultant-contractor link-up? On the very smallest of projects one hires an architect and consultant to protect oneself and to vet the work. In this instance, this is a grey area and I think that is the problem.

Mr. Gowran.—I can confirm that Kellogg have lost money on this contract. The way the team handled the contract is perfectly normal in the chemical and petroleum industries; the client appoints a contractor to carry out the design and construction work. This is perfectly normal in our business and in the petroleum business and it is done by other companies. It may not be normal in Ireland because there are not many engaged in this business here but it is perfectly normal for the client to have his own team of engineers to prepare job specifications, to put the job to tender and for contractors to tender in this fashion. It is a perfectly normal way of doing business in the chemical and petroleum industries.

474. Deputy B. Desmond.—Surely the normal practice, where Kellogg were paid £6 million as consultants, would be to have public tendering sought, where the tenders would be opened and vetted by you, and more particularly by other consultant staff, rather than you, as it would appear, relying on the goodwill of Kellogg to see you right?

Mr. Gowran.—In the case where tenders were sought they were opened in the presence of our engineers.

475. Deputy B. Desmond.—It would appear that a very substantial proportion of work was done by Kellogg themselves and that tendering did not arise?

Mr. Gowran.—The work that was carried out by Kellogg was the mechanical erection of the plant. The rest of construction was done by sub-contractors.

475A. Deputy B. Desmond.—That amounted to many millions of pounds.

Mr. Gowran.—It certainly did.

476. Deputy B. Desmond.—Kellogg were consultants to you but they were also contractors to you. Were they, as it appears, tendering to you?

Mr. Gowran.—No.

477. Senator Cooney.—Did Kelloggs supply any plant to you?

Mr. Gowran.—No. They did the mechanical erection of the plant under the contract. That was done at cost.

478. Deputy B. Desmond.—Is that normal practice?

Mr. Gowran.—Yes.

479. Deputy B. Desmond.—If the ESB wanted to build a power station tomorrow, would they follow that practice? If Cement Ltd. were building major cement works in Drogheda, would they follow that practice?

Mr. Gowran.—I cannot speak for the ESB or for Cement Ltd.

480. Deputy B. Desmond.—I do not want to draw out the analogy but I am thinking of major civil engineering projects which were in parallel development at that time.

Mr. Gowran.—This was not a civil engineering type of job. We are talking of the mechanical erection of a big processing plant. This kind of work has also been carried out in Ireland. In our submission we mentioned that this method of carrying out construction has been done in recent projects in Ireland. We mentioned the Merck job in Ballydine, Mitsui in Little Island and Irish Distillers. We can go back further and mention the refinery built in 1959.

481. Deputy B. Desmond.—One does not deny that that kind of work was done but in relation to many of the contracts mentioned a great deal of public tendering was sought and submitted. The suppliers of the mechanical equipment were not necessarily the erectors of the equipment. Are there not serious questions to be asked in relation to this?

Professor O’Donnell.—Any tenders involved in the case of sub-contracts for example and any bids made by suppliers of equipment were opened in the presence of NET engineers. It was not a case of Kellogg making an inquiry for equipment or for the carrying out of a particular sub-contract, and their deciding who would be the contractors and simply recommending one name. That was not the case. I do not see that the form of monitoring in this area would have been any different. Perhaps my colleagues would like to comment.

482. Deputy L. Lawlor.—Does the sum of £6.3 million include the cost of the mechanical erection of this equipment?

Mr. Gowran.—The contractor had included a fee for supervising the mechanical erection of the equipment.

483. Deputy L. Lawlor.—They carried it out also?

Mr. Gowran.—Yes.

484. Deputy L. Lawlor.—Therefore, did they not get the increased profits on that work?

Mr. Hynes.—No. We keep telling you “No”. They got no increased costs.

485. Deputy B. Desmond.—But did they not get the contract?

Mr. Hynes.—We keep telling you that they managed the work but they did not get paid extra money for doing it.

486. Senator Cooney.—An amount of £99 million was paid to Kellogg——

Mr. Hoey.—By Kellogg.

Senator Cooney.——and £6 million of that was their fixed fee. How much of the balance of £93 million was paid to Kellogg for work being carried out?

Mr. Crumlish.—The figure is broken into three sections. There was the money paid to Kellogg for materials purchased for use on the site, and on behalf of the Company which amounted to £30 million, and the amount paid to them for the direct hire element of their job, £25 million. The subcontract payments through Kellogg made up the balance.

487. Senator Cooney.—For their own work they got £55 million?

Mr. Crumlish.—Yes.

488. Chairman.—Are you saying they did not make any profit on that?

Mr. Crumlish.—All elements of the construction in respect of direct hire were on a totally reimbursable basis at cost. They paid the employees for the labour and NET reimbursed them on an on-going basis. NET audited on a continuous basis all payments made in respect of construction, direct hire and the various allowances associated with this. We had an active audit team outside the engineering people involved in respect of supervision of the technical aspects, headed by an accountant who reviewed and audited all payments made to Kellogg. In respect of materials purchased through Kellogg’s London head office, we had a qualified accountant located in that office who reviewed all bid tabulations, compared amounts, kept them for verification, made notes relevant to the reasons for accepting one bid as against another, and processed the actual bid right through the purchasing stage until receipt of the material. In the initial stages when we were going out to tender on the major items of equipment, a total audit function was carried out in the London office on those items.

489. Senator Cooney.—I appreciate that there was an audit of the £55 million, but what system had you to ensure that the figure Kellogg gave was the cheapest possible for doing that particular work?

Mr. Crumlish.—Each item of equipment was purchased on the basis of a competitive bid.

490. Senator Cooney.—That is in regard to the reimbursable element, but I gather that in that figure there was a large amount for wages.

Mr. Crumlish.—This was the direct hire element.

491. Senator Cooney.—Who was monitoring the efficiency of the work Kellogg were doing?

Mr. Crumlish.—The Company had a construction manager and a team who monitored the performance of the direct hire and the subcontract elements in the course of the direct erection of the plant.

492. Senator Cooney.—Arising from that, it was suggested that Kellogg were paying a rate over the norm paid in the building industry throughout the country at that time.

Mr. Hoey.—Those allegations are unfounded. I believe we deal with that fully in our submission. The rates and conditions cover a number of areas but the basic rates of pay were initially based on the rates applying in Cork at the time work started. They were only adjusted by the adjustments in the National Wage Agreement or by the relativity increase granted within the construction industry.

493. Deputy L. Lawlor.—Were the hourly rates calculated in the charges received, the actual rates paid to the employees or were they Kellogg’s hourly rates with an overhead recovery?

Mr. Hoey.—They were the actual payroll rates paid to the employees. That is what we mean when we say that construction was reimbursed at cost.

494. Deputy L. Lawlor.—And did £6.3 million cover Kellogg for managing?

Mr. Hoey.—Yes. It covers Kellogg’s fee for providing site management.

495. Senator Hillery.—There is a very substantial outlay for mechanical engineering work. What form of competition or tendering took place for this work?

Mr. Hoey.—As you will see from our submission, the mechanical erection of the project was handled on a direct hire basis. This means that work was undertaken by Kellogg recruiting their own labour directly and providing their own supervision. You will also see in our submission the reason why it was decided to undertake the work on that basis as distinct from handling it on a subcontract basis. Simply said, the reason was that in the considered view of NET and Kellogg, and after consultation with other parties, the complexity and size in scope and volume of the work could not be undertaken in a reasonable manner by the facilities that there were then available in the contracting industry in this country. That did not apply to the civil, building, electrical, instrumentation, painting or insulation type of jobs that had to be done, which were entirely subcontracted. Statements have been made about the minimal involvement of Irish contractors in the project and therefore, I want to say that of the 40 subcontracts awarded, 38 went to Irish companies.

496. Chairman.—What proportion of the total cost would that represent?

Mr. Hoey.—It was of the order of £25 million.

497. Deputy L. Lawlor.—We appreciate that it is difficult to decide the number of people you can retain to do a complex petrochemical project, but the civil engineering work straightaway was running into a £2 million overspend. There is nothing complex about that type of work. From there on one must question how close was the scrutiny between NET and Kellogg and their ability to monitor the situation. What was the explanation for the £2 million overspend right from the start?

Mr. McSweeney.—On water supply?

Deputy L. Lawlor.—There was an overspend of £1.464 million on water supply and roads; ESB power supply, £203,000; bridges and level crossings, £160,000; and channel dredging, £101,000.

Mr. McSweeney.—I can deal with water supply as that is a big figure.

Deputy L. Lawlor.—Roads and water supply come to an overspend of £1.4 million.

Mr. McSweeney.—In regard to water supplies we had an understanding at the time we made the arrangements with Cork County Council that we would take up from the Glashaboy scheme what they had provided originally for a smelter and they indicated to us the cost in respect of water. The arrangement was that they would put in the pipeline and own it. Afterwards, they wrote to us saying that they would need a reservoir both for our purposes and for their purposes and that they would expect us to make a contribution of 25 per cent towards that second phase. They did not ask for any contribution towards the first phase. A year later when they were about to go ahead with the work of putting in the pipeline they informed us that because of there not being any money available they could not possibly do the job, that they could not go ahead until such time as money was made available for the work. We were faced with the situation of the job being late and there was nothing for us to do but to agree to furnish the money on the condition that it be refunded to us when it became available from Government sources. In the long run they were never paid. We got a refund of £300,000 from them in respect of oversizing of the pipe for our needs; they wanted their own needs provided for also. Had we not put in the money the job would have been late. It was a total loss in the sense that we did not provide anything in our estimates because of our being told that it was being put in by the County Council as a capital charge. The whole story is rather long but I have it documented here should anybody wish to have it.

Mr. Gowran.—The roads money involved a planning condition imposed which was not in the original planning permission. Originally it was intended that there would be just one railway bridge into the site and to have a level crossing but after the matter had been discussed with CIE and considered we decided that we required a second bridge instead of a level crossing. That is how the extra expenditure arose in that case.

498. Deputy L. Lawlor.—It seemed to have been the case that all and sundry could go to NET and be paid. There seemed to have been an open-ended situation regarding recoverable increased costs which were a big problem, obviously. Does it not appear that at the end of the day NET paid for the incompetence of Kellogg, of Cork County Council, of the ESB or of whoever was involved in a situation of increased costs?

Mr. McSweeney.—Many of the problems were understandable but if one were to make sure that all of these risks were eliminated, one would have had to delay jobs considerably.

499. Deputy B. Desmond.—On the question of the estimates from the Irish contractors, was the work put out for public tender?

Mr. Hoey.—Is the Deputy asking whether it was advertised?

Deputy B. Desmond.—Yes.

Mr. Hoey.—What happened was that the competent contractors who were recognised as being suitable to undertake this type of work were invited to tender.

500. Deputy B. Desmond.—Do I take it that the tenders were supervised by NET staff?

Mr. Hoey.—Yes, indeed.

501. Chairman.—I might intervene here to refer back to a question that was answered by Mr. Hynes last week. Regarding the figure of £63 million which Mr. Hynes said that the Board of the Company approved in December, 1974, when we asked when that figure was with the Government, Mr. Hynes said that it was conveyed to the Government in early January 1975. Can Mr. Hynes recollect how that figure was conveyed to the Government?

Mr. Hynes.—My understanding is that the matter was before the Government in January, 1975. It would have been conveyed to them from the Department concerned and not from us.

502. Chairman.—My reason for asking the question is that we have reason for believing that neither the Department of Industry and Commerce nor the Department of Finance were aware of this figure until April, 1975.

Mr. Hynes.—My understanding was that the figure was before the Government in January 1975 but it would not have been conveyed to them from us. We do not communicate with the Government. Such communication is by way of the Departments concerned.

503. Chairman.—I am talking about the Government Department. Can you recollect visiting the Department or writing a letter to them in regard to this figure?

Mr. Hynes.—I have not had recourse to the papers concerned for some time now.

504. Deputy Deasy.—What form of liaison did you have with the then Department of Industry and Commerce and with the Department of Finance?

Mr. Hynes.—Normally we would deal direct with the Department of Industry and Commerce. Either we would meet officials of the Department or we would write to them.

505. Deputy Deasy.—How frequently would these communications be?

Mr. Hynes.—It was not a question of frequency. We met officials either when we wanted to see them or when they wanted to see us but it was not normal for us to have dealings with officials of the Department of Finance. Normally one deals with that Department through one’s parent Department. It would be only on very special occasions that we would have communication with the Department of Finance. This was the case in the instance of the correspondence referred to during our last meeting. On that occasion I wrote to an official of the Department of Finance but such a course was unusual.

506. Deputy B. Desmond.—On the last occasion we had reached the stage at which £80 million was the cost involved. Can the witnesses take us through the stages from then on to where the figure grew within four years to £137 million?

Chairman.—I think it had reached £80 million by October, 1976.

Mr. Crumlish.—The major areas of increases in costs arose mainly on site where we experienced delays in the execution of the job and where there was under-estimation of the scope on the part of the main contractors in respect of certain aspects of the job. There was also the fact that so many of the costs associated with the project were time-related at that point. On the last occasion we mentioned that commitments had been made for the major part of the equipment by late 1976 and we were in a position where we were making stage payments. As soon as these payments arose, the money had to be borrowed and interest had to be paid on it. What affected the cost most from there on was the question of delay and the time-related costs as a result of delay. These were interest charges which accrued in the financing of the project. The project management of the Company had put together a team to supervise and manage the project. They had also established a factory organisation to run the factory. This organisation was in the course of being put together from early 1977 with a view to having the personnel trained and in operation by the time the factory was supposed to come on line in 1978. It was not possible once these people were recruited——

507. Deputy B. Desmond.—Could I interrupt? You said that a major proportion of the increased costs arose through site conditions, the scope of the contract and so on. A site survey had been made which had involved some 200 site investigations and the Company were presented with a report in that regard. If I recall correctly, the Cork Harbour Commissioners did this on the Company’s behalf. Is that so?

Mr. Hoey.—They did, for the initial investigations.

508. Deputy B. Desmond.—And this data was then presented to the contractors. It appears, even in the most difficult of circumstances, that a variation of additional costs of from £8 million to £10 million would mean that the basic contract as envisaged by the Company was deficient to a very alarming degree and that a mushroom of costs was involved. Am I being unfair in suggesting this?

Mr. Hoey.—You are.

508A. Deputy B. Desmond.—It appears that for any experienced international consultant or Irish consultant coming in to do that kind of work whether it is rock formation or harbour work—and I know Cork harbour reasonably well—the presentation to contractors of the site conditions is not beyond the bounds of consultancy competence. We want firm contracts whether we are building a bridge across the Lee or the Liffey. There are experienced consultants here. How is it that this site managed to mushroom in site escalation costs?

Mr. Hoey.—The Deputy has asked quite a number of questions but with regard to the site investigation, first of all, the additional cost associated with site soil conditions was not £8 million or anything like it; it was a relatively small figure and it was mainly related to two areas of the site. One was the jetty and the other was the area in the urea plant where the major equipment is located. In relation to the jetty, a very full site investigation was carried out and it was supplemented with a second investigation with a view to confirming the geological situation there. The experience of the contractor doing the work was that the variations in the geological conditions were far greater than anything that was predicted or shown in the site investigation or that could be interpreted from the site investigation data. I am familiar with jetty construction in Cork harbour since 1958 and it is quite a notorious area for jetty problems. We were aware in advance of the need for a full site investigation in the area of the jetty because of the harbour history. We went to particular pains to try to get a full investigation for the design purposes, but unless one sunk a bore hole every ten feet one would not have got the information that ultimately proved necessary to come up with a proper definition of what had to be done. The geological problems in the jetty area were extremely abnormal, even far more abnormal than we anticipated they might be.

509. Deputy B. Desmond.—How much additional costs did that result in?

Mr. Hoey.—I do not have that figure with me but it was probably not more than £½ million pounds in relation to the jetty. With regard to the other major problem area relating to the urea plant location, unfortunately one of the site investigations done there was inaccurate. That investigation showed that the level at which rock existed below ground was higher than it was and this stems from the fact that there was also an abnormal cliff of rock in that area. In one case it was total abnormality in the geological conditions and in the second it was partly due to a bad survey and to further abnormality.

510. Deputy B. Desmond.—Do the Company concede that where one is building a project of that magnitude, where one brings in experienced consultants either from here or abroad it is not beyond the bounds of factual consultancy competence to assess the degree of extremes that the Company have suggested existed and that it is normal practice——

Mr. Hoey.—Yes, I accept——

Deputy B. Desmond.——and that that did not happen?

Mr. Hoey.—In relation to the jetty we employed one of the most competent international jetty design contractors, Frederick Harris, with design offices all over the world, who has designed probably more jetties than any other single consultant.

511. Deputy B. Desmond.—Had the Company any comeback on him because they had to spend another £½ million?

Mr. Hoey.—No.

512. Deputy B. Desmond.—Why not?

Mr. Hoey.—We had extensive reviews of that possibility and at this juncture I cannot recall all the reasons why. This is something which was happening four years ago.

513. Deputy B. Desmond.—What of the site conditions? The company mentioned Frederick Harris. Demaroc International worked through the Cork Harbour Commissioners. How effective were they?

Mr. Hoey.—The Demaroc survey was basically accurate. In the area of the jetty the actual holes put into the ground to investigate were not close enough to pick up all the variations that occurred. When the jetty was being constructed it consisted of piles which are driven into the rock and these piles then had to be anchored into the rock. It is like putting a rawlplug into a wall. It is incredible, but the variations in the geology that were discovered between one pile and the next were totally unpredictable. The difficulties that arose from these geological problems were quite incredible. They delayed progress very substantially and as far as I am concerned there is no way that that problem could have been predicted short of doing a site investigation by putting down bore holes about every ten feet.

514. Deputy B. Desmond.—If one is spending, as the Company ultimately did, £140 million, such a pre-emptive exercise might well have been necessary?

Mr. Hoey.—With the benefit of hindsight, we should have done a more intensive site investigation of the jetty.

515. Deputy B. Desmond.—What about the site of the urea plant? Didn’t that encounter enormous problems as well?

Mr. Hoey.—Not enormous problems. The piles that were driven had to be longer. That was not a major problem. It involved us in extra cost.

516. Deputy B. Desmond.—We have been discussing the increased costs relative to the site and the scope of the contract relative to that. Could you tell us about the other remaining features of cost escalation?

Mr. Gowran.—To comment on Deputy Desmond’s statement, it is not uncommon for problems to arise where people are dealing with civil works under water. If the Committee require us to provide instances of problems other people had when they built jetties around the country we can provide them.

517. Deputy B. Desmond.—Fortunately we do not have to investigate those instances. There was a specific tender submitted by the contractor relative to the cost of constructing the jetty. The contractors are of alleged international renown. The jetty was to cost £2.3 million as originally submitted when the total estimate was in the region of £51 million. You accepted a figure of £63 million but the jetty was still to cost £2.3 million. How much did the jetty finally cost?

Mr. Hoey.—It was in excess of £3 million. The tenders for the jetty did not come from Kellogg but through Kellogg from various contractors, Irish and international. The contract for the jetty was awarded to an Irish contractor who, in association with his Dutch parent company, undertook the work. I want to ensure there is no misunderstanding about who was tendering for the work.

518. Deputy B. Desmond.—Were not Kellogg the supervising contractors who were getting £6 million?

Mr. Hoey.—Yes, but supervising contractors is not the same as tendering for the jetty.

518A. Deputy B. Desmond.—Kellogg were very big in the operation?

Mr. Hoey.—They had the responsibility for the site contract.

Chairman.—Perhaps we should move on. That only represents a relatively small area.

519. Senator Cooney.—There were substantial delays due mainly to two elements, weather and industrial disputes. With regard to industrial disputes, it has been suggested that while Kellogg were experienced in large contracts in other parts of the world they did not have any experience of the Irish labour ence. Their inexperience on this scene was probably a serious contributing factor to the high level of unofficial disputes and loss of time: Do you agree?

Mr. Hoey.—We responded to that question last week. We said that we did not subscribe to the view that Kellogg were not competent to manage industrial relations.

520. Deputy B. Desmond.—Was it a fact that from the outset they attempted to manage industrial relations on the site from London?

Mr. Hoey.—That is not true. From before the start of actual construction Kellogg had a resident construction manager and full-time experienced industrial relations officer on the site. As the project grew in scope they increased the site industrial relations team to three people full-time and they also had the services of an Irish consultant. The normal practice on construction sites in Ireland is to have one industrial relations officer. In the case of Marino Point the main contractor had three. Apart from that the individual subcontractors, who naturally have to be responsible for industrial relations within their own organisations, also had their own industrial relations personnel. Some of them had people resident full-time on the site. More had industrial relations people available from their home office.

521. Deputy B. Desmond.—Was it a fact that there were discussions, pressures and correspondence between NET and Kellogg which led to changes in industrial relations management on the site and to changes in the construction management team? That could hardly be regarded as Kellogg being in control of industrial relations on the site.

Mr. Hoey.—In any large contract of this kind the situation is likely to arise that the people first assigned to the project by the main contractor would not prove competent to do what had to be done. In such a situation if the contractor does not voluntarily replace that person the client has a duty to ask for that to be done. Marino Point was not the first project in the world where it was necessary for the contractor or the client to arrange for people to be removed.

522. Deputy B. Desmond.—There was still cause for alleged “unofficial” disputes which cost the Irish taxpayer and NET millions of pounds. One employs contractors to have good industrial relations on the site to get the job done expeditiously. There have been suggestions from countless sources that Kellogg were anything but capable of fulfilling that role and that NET were more than aware of that throughout the contract. Comment?

Mr. Hoey.—I have a good idea of who your sources might be. The disputes at Marino Point were all unofficial. Last week Deputy Deasy referred to 76 disputes. By our record there were 58. Of those 58 disputes there was none in the first year, 1975; 11 in 1976; 20 in 1977; 23 in 1978 and four in 1979. It was 58 disputes over four years and not 76 over three. They were unofficial disputes and I do not know if it is reasonable to hold management responsible for unofficial industrial actions.

523. Senator Hillery.—Why were there higher figures in 1977 than 1978?

Mr. Hoey.—The labour force had peaked on the site at that time.

524. Senator Hillery.—Is there a direct relationship between the numbers on the site and disputes?

Mr. Hoey.—The more contractors on the site the more the likelihood of industrial action.

525. Senator Hillery.—Are you satisfied that every effort was made on the management side to adequately manage industrial relations?

Mr. Hoey.—I am satisfied that every thing that could be done by the large team from the main contractor and by the subcontractors in conjunction with NET’s own team on the site was done.

Deputy B. Desmond.—When one has a multiplicity of subcontractors and it appears that the site agreement on the site is not operative and when one is in the midst of a reimbursable contract, it becomes almost a honeypot.

526. Senator Cooney.—Were not administrative and technical costs being paid all the time during the strikes?

Mr. Hoey.—To the main contractors?

Senator Cooney.—Yes.

Mr. Hoey.—The contractor had to be reimbursed for the people he had on the site. Plant hire companies had to be reimbursed.

527. Senator Cooney.—He lost nothing while the men were idle?

Mr. Hoey.—Yes, we said that the nature of the contract is that all construction costs are reimbursable at cost.

528. Senator Cooney.—Was there less incentive to get a speedy settlement from that point of view?

Mr. Hoey.—If you were on the site as I was you would realise the amount of effort and the amount of interest on the part of the main contractor, both on the site and in his home office, and of the parent company in the United States to try to get these disputes settled. It was not in the interest of Kellogg to have the job delayed. There was a disincentive for them to have the job delayed because the longer the job has gone on the more they have to pay in keeping home office services available to the job. Probably this is the reason why we suspect that the main contractor Kellogg has lost money on the project.

529. Deputy B. Desmond.—Surely the Company will accept, to keep the matter in perspective, that the loss of man-days which gave rise to prolonged delays, as has been suggested to us, extended the total project time by about five months and that, generally speaking, on the site date suggested to us, May 1976 onwards to the completion of the project in 1979, for all practical purposes there were no major industrial disputes. Although there was a period of serious industrial disputes which gave rise to a delay of five months that would not account for major delays in the total project but it gave rise to cost escalation. The Company must feel that the importance of what happened, without mitigating in any way what happened, should not have been totally over-stressed, obviously. Comment?

Mr. Hoey.—As far as I am concerned one day lost is unacceptable.

529A. Deputy B. Desmond.—One is talking about five months.

Mr. Hoey.—That is worse.

529B. Deputy B. Desmond.—One is talking about a loss of five months in an extended period of some years.

Mr. Hoey.—I am not saying that the picture was rosy but it was not as bad as stated last week.

530. Deputy B. Desmond.—Have the Company been able to put a figure at all on the total cost of those disputes? What did those five months or 400 odd days that were lost cost?

Mr. Hoey.—I think we gave that last week. It was of the order of £2 million . . . . .

Professor O’Donnell.—Per month.

Mr. Hoey.—Again, to put things in perspective, people who are talking about the industrial relations problem at Marino Point would seem to want to convey the message that this is the only site in Ireland which had any significant labour problems. That is not the case. People should remember Tarbert power station, Asahi at Killala, Courtaulds in Letterkenny, the problems on the site at Little Island and Midleton Distillery. NET were not involved in those sites nor were Kellogg. Nonetheless, there were major industrial relations problems, major delays and major cost overruns on those sites which people would seem to forget about. I know that the Committee are not investigating those companies, but it is important that we do not lose perspective in the way we are examining Marino Point.

531. Senator Hillery.—I do not think that anybody here is suggesting that the exceptionally high number of man-days lost here is peculiar to Marino Point, but the Company should be aware also that there have been many major projects, particularly major multinational companies that have been established here, where very few man-days have been lost and they were large-scale enterprises.

Professor O’Donnell.—None of them was anything like the scale of this project.

Mr. Gowran.—We have looked at other Irish projects and we have collected some data with regard to both costs and schedules relating to projects which should be comparable to Marino Point. We have made a list of eight projects, including the NET project, and we got some information from various sources on what their cost over their original cost was and what their schedule increase was. We also got information on some European projects and we have some information on other world fertiliser projects. We would like to give these to the Committee so that they can make a comparison with the NET project at Marino Point.

Chairman.—We will move on from here. We have dealt in some detail with two aspects but they represent a very small proportion of the final figure. The figure is £37 million.

532. Deputy B. Desmond.—I have cleared my mind on £2.5 million of it so far, but where is the other £35 million?

Professor O’Donnell.—Regarding industrial relations, the delays we were talking about would cost at least about £10 million.

533. Deputy B. Desmond.—I asked the cost of the unofficial strikes.

Mr. Hoey.—We said £2 million per month.

Mr. Conlon.—The total cost of the industrial delays was of the order of £2 million per month and we attribute five months of the delay in the schedule to the industrial stoppages. Therefore, it is of the order of £10 million.

Deputy B. Desmond.—I stand corrected. I intend to check out the figure carefully subsequently. I am satisfied about £10.5 million anyway.

534. Senator Cooney.—Are there other areas where there was an increase because of scope changes in the work? For example, we understand that the job specification with regard to the urea product had to be changed. I understand that this change was to take account of the markets in the Far East. Why did the original specification not take that into account?

Mr. Gowran.—We did make some changes on the materials handling side. We had fully scoped the materials handling in the original job specification to the requirements as we knew them then from our commercial people. When we got the check estimate and saw the way the costings were going we did make major reductions in the scope of materials handling and this included, for example, a reduction in the size of the bulk store. Subsequently because of the commercial requirements we had to put these facilities back into our job specification and we had to provide facilities on the jetty for exporting both bulk and bag urea to foreign markets. Therefore, we did make changes there which affected the cost of the project.

535. Senator Cooney.—Can the Company put a figure on the cost of those changes?

Mr. Gowran.—They would be something in the region of £1.5 million or £2 million on that. I will have to check on that again.

536. Senator Cooney.—By April 1975 you knew the final planning conditions and what you would have to meet. The original planning conditions were known in August 1974 but I understand that there was an under-estimation in the Kellogg figures in October 1975 of £3.7 million with regard to that. Am I correct?

Mr. Gowran.—The figure the Senator is referring to is an estimate made by Kellogg and NET did not agree to that estimate. The planning conditions were known at the end of April 1975 and, apart from the noise requirements which had a lot of difficult design problems associated with them, the estimate which we had in October 1975 should have taken those conditions into account.

537. Senator Cooney.—Who had to pay for the situation arising from that?

Mr. Gowran.—We had previously estimated that the cost of the planning conditions over what is normal in an ammonia-urea complex would be in excess of £2 million. That was at the time of the planning permission.

538. Senator Cooney.—And has that to be met by NET?

Mr. Gowran.—Yes.

539. Senator Cooney.—We understand that the scope with regard to civil engineering and electrical matters was insufficiently defined or calculated and, consequently, there was a considerable over-run afterwards in those areas. Is that correct?

Mr. Gowran.—Yes.

540. Senator Cooney.—Can you tell the Committee how much the over-run amounted to?

Mr. Crumlish.—In relation to electrical instrumentation, insulation and painting the over-run was of the order of £1.6 million.

541. Senator Cooney.—Who had to meet that?

Mr. Crumlish.—In all cases this was a reimbursable contract and NET had to meet all expenditure incurred.

542. Senator Cooney.—Who was responsible for the under-estimation?

Mr. Crumlish.—The main contractor was responsible for the under-estimation.

543. Senator Cooney.—When he put in his original estimates in this area did your team supervise or check his work or approve his estimation?

Mr. Gowran.—The estimate of October 1975 was checked out as far as possible by the NET team operating in the contractor’s plant but at that stage all the detailed design of the civil electrical instrumentation and insulation had not been carried out. They were still estimates by the contractor. When the detailed design of these facilities was carried out as per the job specification provided by NET more work than was estimated by the contractor was required.

544. Senator Cooney.—But he had to be reimbursed?

Mr. Gowran.—Yes.

545. Senator Cooney.—Does that seem a little unfair from the NET point of view?

Mr. Gowran.—Yes.

546. Senator Cooney.—But was that not a consequence of the type of contract you had?

Mr. Gowran.—Yes.

547. Deputy B. Desmond.—Does the increase seem abnormal when one bears in mind that the tender price was around £500,000 and the electrical work cost £1½ million in the end?

Mr. Gowran.—The tender was on the basis of the schedule of rates for particular scope and it was not fully scoped at the tender stage.

548. Deputy B. Desmond.—Is it not still somewhat incredible that a tender would come in for electrical work on a site for £500,000 — even though one might change the scope or, as happens on a site, one might change from direct labour to subcontractors, something that happened on this site — and be increased to £1.6 million? One might add on, in a normal situation, up to £100,000, but to go from £479,000 to £1.6 million seems excessive.

Mr. Gowran.—We are talking about the detailed design of all the facilities being available at the time the tenders were requested. The detailed design of the facilities were not available at the time the contract went out to tender.

549. Deputy B. Desmond.—Then, one comes back to the fundamental point, whether one is wiring a house, Leinster House, or a plant, that one does not go to tender until one has every farthing copperfastened in terms of estimation, tender price, price variation and so on. Is it not arguable, in fact, that that section of the tender should not have been put out at all until later?

Mr. Gowran.—If we were to do that on a project of this size, as the Deputy has suggested, the plant would not have been built yet.

Deputy B. Desmond.—I have spoken to ESB engineers, and other people on the construction side, and they claim that what I have stated is the way the ball is hopped around the place and the way they do their jobs. I put it to you that whether it is the jetty, the electrical work or the instrumentation it appears that the thing mushroomed.

550. Senator Cooney.—Will the Company make available to the Committee the dates on which they submitted their figures for the estimated cost of the contract to the Department, the various figures submitted and the dates on which they were submitted? Will the Company give us copies of the submission that accompanied those figures to the Department?

Professor O’Donnell.—I have already made a note of that.

The witnesses withdrew.