Chapter 1 - The Committee’s approach to the IIRS
1.The Committee in undertaking this enquiry into the cost effectiveness of the Institute for Industrial Research and Standards had a series of seven meetings with the senior officials of the Institute which ended in October, 1985. They also heard evidence from the officials of the National Board of Science and Technology who undertook a major study of the IIRS in 1983.
2.The Committee had access to a wide range of documentation including:
-the Annual Report of the IIRS
-the IIRS response to the Committee’s questionnaire set out in Appendix 1
-the NBST Report on the IIRS
-the IIRS development plans for 1980 - 1981 and 1985 - 1989
-IIRS reviews of its key programmes and copies of its annual surveys of users and other market research work undertaken by them.
3.The Committee had informal discussions also with officials of the Department of Industry and Commerce, NBST, IIRS and users of the IIRS services and also engaged the services of consultants Messrs Coopers & Lybrand, in preparing an early draft of this report.
4.As a result of these various hearings, examination of documents and consideration of the evidence, the Committee has compiled this report in pursuit of its mandate to review and report to the House on its recommendations in pursuit of more cost effective alternatives and the elimination of wasteful and obsolete programmes in the public sector.
5.This report is therefore by definition not a comprehensive review of IIRS but rather is designed to fulfil the Committee’s mandate.
6.Accordingly ,it concentrates on the main areas of concern arising for the Committee and on which it wishes to make recommendations to the Dáil so that value for public money can be improved.
7.Many of the primary concerns of the Committee have happily been resolved or are in the course of resolution. Among the questions arising in the course of the review were:
1.The high level of debtors and the rising level of bad debt provisions over the past decade.
2.The deficiencies in the management information system as it related to charging out time on the consultancy assignments. This has since been satisfactorily resolved by the implementation of a new computerised IRIS system which has already been upgraded.
3.The major cost overruns and the high cost and high specification of the new IIRS Headquarters building, Technology House.
4.Duplication of public service in the micro electronic field arising as a result of the establishment of MAC by SFADCo.
5.Problems arising from the budgetary system which give rise to avoidable uncertainty for IIRS. These are compounded by the fact that IIRS receives some of its revenues on foot of research programmes on behalf of Government Departments from other than its parent Department.
6.The high proportion of administrative staff and expenses and what were seen as additional unnecessary layers in administration. This problem has largely been resolved since the appointment of a new Chief Executive.
7.The high levels of pay attaching to technician grade staff as a result of being tied to public sector pay and recruitment policy and structures that seriously circumscribe management in effecting change and cost control.
8.The low level of recognition of IIRS services in the newer industries despite a generally favourable response by industry to the services provided.
9.The total lack of an enforcement agency to give effect to the work being done by IIRS in the development of standards.
10.The lack of a fire testing facility.
11.The lack of recognition or awareness of standards in public sector procurement.
12.The lack of non-tariff import requirements particularly relating to standards.
13.A lack of distinction between the commercially provided consultancy services of the IIRS and the development services and those provided to Government Departments or agencies on foot of a general grant-in-aid.
14.Deficiencies in the IIRS annual report and accounts some of which are common to other State-sponsored agencies.
15.The balance of expenditure and subsidy between the various programmes of the IIRS and the balance between the standards and industrial research work.
16.The lack of specificity in the targets set by the IIRS for its own performance in its five year plan and the nominal improvement provided for in the plan for increasing financial self-sufficiency.
17.The lack of clarity on the present status and future intention in relation to the bio-technology unit in University College, Galway.
8.These various questions and concerns were raised by the Committee in the course of its enquiry and, while many of them are subject of recommendations in this report, the Committee is happy to record that the IIRS was able to alleviate its concerns on most of the issues in the course of the review.
9.In the end the most important question in the minds of the Committee is whether the IIRS gives, or is geared to give, value for money to taxpayers. The recommendations in this report are designed to increase the value derived both in terms of improving industrial efficiency, quality and product range and reducing the dependence on the Exchequer in doing that and reducing the risk of Ireland being used as a dumping ground for shoddy goods. These three objectives are linked because Irish manufacturers will find it impossible over time to continue to supply the domestic market if it is to be swamped with inferior low-cost imports with inadequate consumer or user information to facilitate discriminating purchasers. This would in turn reduce their competitiveness or commitment to quality and their capacity to pay a higher proportion of the cost of the IIRS services.
10.The Committee considers that the IIRS is now geared to give taxpayers value for public monies allocated to it, provided other steps are taken to render standards enforcable and some means is found to increase management flexibility in the deployment of its staff resources. This subject is dealt with in Chapter 5. The other primary areas of concern are dealt with in other chapters.
Chapter 2 - The IIRS, its formation and development
11.The Institute was established in 1946, by Act of the Oireachtas, which was amended in 1954. This legislation was replaced by the Act of 1961 (No. 20), which was designed to “overhaul the functions, powers and organisation of the Institute so as to enable it to function more effectively”. Borrowing powers were conferred on the Institute in the IIRS (Amendment) Act, (1979).
12.A comprehensive review preceded the 1961 Act. At that time about 15 technical staff were employed by the Institute and it operated within a grant-in-aid for current expenditure of £35,000, together with provisions for additional laboratories, equipment, premises and land amounting to £41,000. By 1985 total staff numbers had risen to 600 and grant-in-aid for current operations and capital equipment came to £7.87m. out of a total budget of £13.7m. The balance was derived from fees including £450,000 paid in fees by other Departments from other grants-in-aid.
13.The Institute is an agency of the Department of Industry and Commerce. It has a Board of Directors appointed by the Minister, with a maximum of nine members.
Functions of IIRS
14.The assigned role and functions of the Institute defined in section 6 of the 1961 Act may be summarised as:
1)Supporting industry through process improvements, testing, analysis, and the dissemination of technical information.
2)Specifying standards and marks for commodities and processes, and encouraging and monitoring standards.
3)Promotion and utilisation of natural resources and waste products through research and development, and
4)Assisting the development and exploitation of inventions which are in the public interest.
15.The following key developments in recent years affected the development of the Institute:-
16.The Government published its White Paper on Industrial Policy, which set out policy guidelines for IIRS to implement and organisational and operating changes which affect the agencies servicing industrial development including IIRS.
17.The IIRS now has a staff of over 600 people employed at its three Dublin locations in Glasnevin, Finglas and the Naul together with liaison officers in each of the newly established industrial one stop shops around the country and at its research facilities in Galway, Limerick, Shannon and Cork.
18.The IIRS offers a technical service to industry through each of its 8 operating divisions for which there is a prescribed scale of charges on the basis of the level and skill of staff time allocated to them.
19.Much of its work is seen as developmental however and for this reason the Department of Industry and Commerce provides an annual grant-in-aid which, in effect is geared to meet the IIRS planned deficit after taking private sector fee income and the income from contract work undertaken on behalf of that Department in metrology, on behalf of the Department of Tourism, Fisheries & Forestry on timber and on behalf of the Department of Energy on energy conservation.
20.The IIRS also funds the National Standards Authority of Ireland which now has established over 500 standards for products and processes including a major standard quality control process which it is now actively offering to industry.
21.The IIRS responds to over 50,000 requests for information and assistance annually and has over 3,000 industrial clients.
22.The IIRS undertakes annual client and market surveys to determine the perceived value of and need for their service and these are taken into account in the Insitute’s internal planning process.
The NBST Report and the IIRS Five-Year Plan
Chapter 3 The Committee’s observations on the NBST recommendations and the IIRS response.
23.The role of the IIRS is set down in the Industrial Research & Standards Act, 1961 and as most recently developed in its 5-Year Plan and provided for in the 1984 White Paper on Industrial Policy.
24.Nevertheless, a major part of the Committee’s task was to consider recommendations of the National Board for Science & Technology which is charged with reviewing and advising the Government on the public sector Science & Technology budget and to consider the IIRS response to them.
25.The IIRS cannot be seen simply in the context of its research role. It also has a major role in supporting industrial development policy through the provision of:
-product and process development
-testing and analysis
-standards certification and metrology
26.This chapter, therefore, reviews the major recommendations of the NBST and the relevance of these recommendations in light of the industrial focus of the IIRS and the progress made since the issue of that report.
27.The National Board for Science and Technology (NBST) was asked by the Government to carry out an investigation into the role, functions and performance of the Institute for Industrial Research and Standards (IIRS) in May, 1981. The study commenced in January 1982 and was finished in September, 1983. The study was considered by the IIRS Board in 1984, which accepted some recommendations and rejected others. While the NBST report dealt with the IIRS, in fact, many of the recommendations were relevant to the Department of Industry and Commerce and many others could not have been implemented without that Department’s sanction. The IIRS therefore was not entirely free to respond to the NBST recommendations.
28.A number of NBST recommendations are noted as being in the course of implementation by the IIRS. In some cases the IIRS has argued that the criticisms of the NBST were not accurate or that the IIRS had already been doing what the NBST was recommending. In other cases, as with respect to organisational changes, the IIRS has implicitly accepted the basic criticisms of the NBST and has devised its own adjustments. The Committee did not examine the adequacy of the NBST’s analysis where the IIRS’s activities appear to be consistent with the NBST’s recommendations.
29.The “key” recommendations of the NBST with respect to the IIRS are set out in pages (i) to (iii) of its report. A more detailed statement follows on pages (vi) to (xvi). Further elaboration of the recommendations is to be found in the text of Chapters 4 to 10. The paragraphs which follow are the NBST’s summaries of its key recommendations.
(a) An Foras Forbartha.
39.In written submissions to the Committee, IIRS stated that they had accepted, and were in the process of implementing the following recommendations: (The numbers in parenthesis refer to the NBST’s recommendation as listed in paragraph 2.1 above).
*To be a more “company-oriented” development Agency; (1).
*To undertake campaigns to improve productivity and quality in industry; (2)
*To expand the Food Programme; (8)
*To provide technical inputs into “one stop shops” for industry throughout the country; (2)
*To work in a more coordinated way with the other development agencies; (2)
*To assist in the development of sub supply opportunities for Irish companies; (1)
*To concentrate on helping companies build up their “in-house” technical competence. (1)
40.The IIRS also stated its acceptance in principle, but doubted the practicality of recommendations:
*To work with groups or companies or trade associations in order to maximise the spread of the impact of the IIRS; (2)
*To encourage industry sectors to set up its own research associations. (2)
41.On the other hand the IIRS in its five year plan which was agreed with the Department of Industry & Commerce ignored a number of recommendations:
*To wind down the National Energy Conservation programme, (9). The IIRS did not accept in principle that the programme should be wound down although lack of funding was obliging the IIRS to cut back in this area. In fact, the IIRS felt that state funding of energy conservation programmes should be expanded;
*To transfer a substantial proportion of the Environment services to An Foras Forbartha (7). The IIRS rejected this on the grounds of economy;
*To establish a separate standards institute (6). The IIRS made its own response to this within the present legislative administrative framework in the belief that go in beyond that was not justified on grounds of cost and operating efficiency.
*Streamlining of organisation and management and reduction of overheads (3). The IIRS did not accept that overheads were unduly high. They added that the questions concerning organisation and management structure should be left to the Chief Executive who was then in the process of being recruited. These have since been tackled.
42.Indeed, two of the key recommendations were outside the control of the IIRS and were directed, therefore, in part at least, at the Department.
*No significant real increase in funding for the IIRS pending its reorganisation and the development of effective strategies and programmes (4).
*The IIRS’s block grant should be replaced by explicit funding of individual programmes. (5). The IIRS endorses this recommendation and indeed the Department claim that they support this approach and in fact see their grant in that way.
DEVELOPMENTAL ROLE OF IIRS
43.The NBST recommended that the Institute should give increased emphasis to “developmental” services to industry,which they described as“R & D, productivity improvement, quality enhancement, skill enhancement,etc.” They recommended that the Institute should clearly distinguish between developmental and routine services/and that all of the grant-in-aid funds should go to promoting development services, while routine services should be cut back to what can be fully supported from fees.
44.In its Five Year Plan, the Institute breaks down expenditure in its programmes into fourteen activities. These activities are broadly classed by the Institute into “developmental” and “service” activities. The former include quality assurance schemes, product development, linkage development, company development, process development, standards, information and research. Service type activities include technical investigations, testing/analysis, metrology and certification/ accreditation. According to the projections in the plan, the Institute expects developmental activities under all programmes to rise from 48.5% of total expenditure in 1984 to 69% in 1989. Expenditure on routine service activities and internal support activities will fall reciprocally.
45.The IIRS has not formally accepted that service activities should be fully self-financing and that the grant-in-aid should be allocated to funding development activities. As the Five Year Plan does not distinguish the source of fee income according to whether it is from developmental or routine service activities, it is not possible to establish the extent to which, if at all, it is intended to implement this principle. The IIRS does plan to increase the self-sufficiency of its programmes in aggregate.
IIRS IMPACT ON INDUSTRY
46.The NBST recommended that the Institute should adopt strategies to “increase significantly its impact on industry” and its recommendations are aimed at improving the impact of the IIRS. However, the NBST outlined a number of specific steps dealing with improving the impact of the IIRS. These included:
54.In its place the NBST recommended a structure in which the position of Assistant Director-General disappeared and departments were grouped into seven operating and one staff division. This structure resembled the 1979 structure (See Exhibits 2 & 3).
55.At the time of the examination of witnesses by the Committee, the IIRS was awaiting the appointment of a new Chief Executive and accordingly,detailed discussion on the subject was not considered appropriate. The IIRS did point out, however, that the structure proposed by the NBST was contingent on the transfer of the environmental and standards programme out of the IIRS and the closure of the energy programme. If these changes did not take place, then the NBST’s proposals would not be practical.
56.The new Chief Executive was appointed in June 1985 and a new organisation structure has been introduced. This is shown in Exhibit 4. The number of operating Departments has been reduced from 34 to 18 grouped into five operating divisions. There are also four staff Departments reporting directly to the Director General. The scope of the Divisions in the new structure is radically different to that envisaged by the NBST, but would appear to meet the criticisms expressed by them. As a result of the introduction of the new structure, the number of staff engaged in administrative functions has been reduced. It is expected that time devoted to administration by Departmental heads will drop from about 60% to 40% leaving them free to devote more time to technical matters and working with clients. The reorganisation will result in a reduction of 30 clerical and administrative staff in the 5 Year Plan.
57.The Committee considers that it has also facilitated the rationalisation of the Institute’s physical facilities as in place of the existing tendency for each department to have its own testing facilities, there will be seven major test houses and laboratories. This will be reduced to five over the 5 Year Plan.
58.It is expected that these physical changes will bring about a significant reduction in financial and manpower costs. The Finglas and Naul road facilities will be closed, resulting in savings of £200,000 per annum. In addition, the sale of the premises may realise about £250,000. These sums will go to the cost of the transfer to the Glasnevin Headquarters though no decision has yet been taken whether these funds will be applied for that purpose or revoked by the Department.
59.The grant-in-aid for the Institute was cut in 1985 and 1986. This could be taken to reflect the NBST recommendation. Though the Committee considers the present funding level to be adequate given the prevailing conditions it also considers that the IIRS has “re-organised and developed more effective strategies and programmes” as was recommended by the NBST as a precondition to increased funding.
60.The arrangement whereby work undertaken for Government Departments by the IIRS is almost entirely funded from the grant-in-aid was regarded as unsatisfactory by the NBST. The Committee considers it incompatible with good resource management. On the one hand, Government Departments make demands for services, which in the aggregate may be significant, without having to consider the costs or the alternative use value of the resources. From the Institute’s viewpoint resources have to be made available to meet these requests even though there may be better alternative uses. And, of course, the global grant-in-aid relieves the Department of Industry and Commerce in particular, of the need to evaluate in detail the value of the work it is commissioning.
61.The NBST proposed the adoption of the so-called “Rothschild” principle or “programmatic budgeting” whereby Government Departments, including the Department of Industry and Commerce, would contract with the IIRS for certain specific services for which itemised payments would be made to cover the cost of providing those services. This principle would be gradually extended to cover all of the services provided for Departments so that eventually the grant-in-aid would disappear.
62.In fact, the system is the basis on which IIRS undertakes the Energy Programme and the Timber Programme on behalf of the Departments of Energy and Tourism, Fisheries & Forestry, respectively.
63.The NBST noted that the introduction of this principle would require long term commitments by the “client” Department so that a sudden cessation of funding would not cause undue disruption. At the same time the NBST suggested that the IIRS should rely more on contract personnel and organisations in carrying out such projects. This would give the Institute the flexibility to respond to changes in the level of funding and in the nature of the projects.
64.The desirability of this type of arrangement is not disputed by the IIRS which has stated that it would welcome its introduction. The Department on the other hand state that its grant-in-aid is specifically to fund the industrial development work of the IIRS and that Metrology is separately funded by that Department and of course the work done on behalf of the Departments of Energy and Forestry is also on this basis though it is susceptible to cessation or cutback on short notice.
65.The NBST specifically recommended that the IIRS should not become involved in servicing the technical requirements of the Department of the Environment’s fire regulations functions without explicit financing of this sort. The Department has so far not agreed to finance this function and the IIRS has not undertaken any expenditure in this area.
66.With reference to the need for increased reliance on contract personnel and services in order to introduce greater flexibility, The Five Year Plan gives no indication that the IIRS intends to adopt this policy. To some extent its options are limited by the fact that the pay scales for technicians are higher than in the private sector. There is, therefore, little chance of vacancies occurring in this grade other than through retirements, ill health, etc. But subject to the one in three embargo in the public service (and which applies to the IIRS), the Institute does seem to plan on recruiting permanent, full-time staff to replace natural wastage and turnover.
67.This is a basic problem for the IIRS in that it has a fixed cost system and variable income and operates in lead role in the fast-changing world of industrial research. The problem will become more acute in the years ahead as it implements its Five Year Plan, thereby becoming increasingly dependent on fee income and, therefore, on its ability to be flexible both in its cost and skill structures. The IIRS has drawn attention to the fact that payroll savings are not available to IIRS to apply elsewhere. This limits its ability to increase its flexibility in line with the NBST recommendations and its future needs.
68.The standards programme of the IIRS was in 1985 reorganised as the National Standards Authority of Ireland (NSAI) while still remaining within the structure of the IIRS. Expenditure on the standards programme in 1984 was £1 million but this is expected to rise by 69% by 1989. This compares with a rise of 23% in total IIRS expenditure indicating that the standards programme is to attract priority attention amongst the thirteen programmes operated by the Institute. In 1984, the standards programme had one of the lowest self financing ratios amongst the thirteen with only 17.0% of its expenditure covered by fees. By 1989 it is expected that this ratio will rise to 34%.
69.In its report on this programme the NBST recommended that the “overall level of use and awareness of product standards, quality and codes of practices in Irish industry should be upgraded significantly”. Specifically,it recommended that:
251An independent standards body called the Irish Standards Institute (ISI) should be established which would determine national standards. Contrary to existing legislation, the ISI would be autonomous of the Minister in this respect;
2The ISI should have its own Council appointed by the Government on the recommendation of the Minister;
3While retaining corporate independence of the IIRS the ISI could remain on the IIRS campus sharing overheads on an agreed basis in the interests of economy;
4The functions of the ISI would comprise:
(i)Formulation of standards either by adopting or adapting foreign or international standards, or by divising original standards to meet national requirements;
(ii)Accreditation of laboratories as competent to test products to standard specifications;
(iii)Certifying that producers are entitled to claim that their products comply with specific standards;
(iv)Publication of standard specifications;
(v)supplying information on all aspects of standards.
70.As with many of the recommendations in the NBST Report they reflected the views of IIRS as conveyed to NBST in the course of the study. This is particularly true in the case of Standards. But IIRS had reservations about the following NBST recommendations:
(vi)Representing Ireland on international standards bodies;
(vii)Supplying technical assistance to Government Departments on standards;
(viii)Maintenance of physical reference standards for units of mass, length, time etc. and associated metrology functions;
26(ix)Promotion of use of standards.
Because establishing the ISI as a fully autonomous body would require legislation, which would involve delays, the IIRS constituted the NSAI as a semi-independent body with its Board of Directors nominated by the IIRS Board and comprising three members of the IIRS. The IIRS also noted that contrary to the NBST’s recommendations, in most EEC countries it is the Government rather than the national standards body which has the power to determine national standards.
Because of the cost implications the IIRS did not accept that the Standards Authority should be operationally independent.
The IIRS did not accept that the metrology functions of the Institute (which were and are discharged by a special division) should be transferred to the new Standards Authority.
71.In its review of the functions of the proposed Standards Authority, the NBST stressed the importance of the body not becoming involved in testing products or processes or engaging in consultancy with respect to quality assessment or control on the grounds that these are incompatible with its independent, regulatory functions. The IIRS believes that the necessary independence is attained under the arrangements now in place for the NSAI. The Chairman has described the NSAI as a totally autonomous body. The Committee has some concerns on this subject, however, which are the subject of a separate chapter.
72.The Environment Programme of the IIRS comprises three departments water, atmosphere and acoustics. The services provided cover air, noise and water pollution, industrial hygiene, chemical safety, soil toxicity and indoor air pollution. In 1984 the Programme cost £1,288,000 of which £638,000 was earned from fees. There were 46 staff engaged in the Programme. Under the five year plan, it is projected that expenditure will rise to £1.5 million with most of the increase funded from increases in the grant-in-aid. Staff numbers will be virtually unchanged from the 1984 complement of 46 persons.
73.In making recommendations about the Programme the NBST took account of the following factors:
*Due to EEC legislation it would be necessary for the state to expand its facilities and staff in the areas of environmental protection;
*The primary responsibility for the establishment and policing of standards of environmental protection is the Department of the Environment;
*The existence of two agencies with responsibilities for advice, consultancy and development work can lead to duplication and competition for state resources especially in the context of an expansion of facilities;
*The relatively small area for conflict of interest between the functions of working for the Department of the Environment (as the controller of environmental standards) and industry as the sector with the greatest potential for pollution. (This implies the viability of combining state environmental services in one body);
*The high standards of service provided by the IIRS Environment Programme and the need for the Department of the Environment (as the Government Department with principal responsibility for safeguarding environmental standards) to have access to this expertise;
*The availability of many environmental services from the private and educational sectors.
74.These factors inclined the NBST to consider a major restructuring of state services in the environmental area. In particular the NBST considered four options:
*Transfer of IIRS and AFF functions to a new independent organisation under the aegis of the Department of the Environment.
*Transfer of part of the IIRS Environment Programme to AFF and the remainder to private sector services;
*Privatise all of the IIRS’s environment programme;
75.The NBST did not consider that the fourth option (the status quo) would provide an adequate framework for providing environmental services at the required level. The creation of a new institution (the first option) was also not accepted because the “special relationship” between the AFF and the Department of the Environment would be disturbed if a new agency was created to cater for all interests (industry, the Department of the Environment, etc.). The third option (privatisation) was not accepted because not all environmental functions could be privatised.
76.The NBST eventually concluded by recommending the second option - the transfer of most of the IIRS’s functions to AFF and of the remainder to the private sector. The NBST recognised that these steps would take time and would require a positive effort to encourage the private sector to expand its role in the area. The NBST believed that it would only be necessary to transfer most of the IIRS staff dealing with noise and air pollution as the AFF already had skills in water pollution.
77.In oral and written evidence to the Committee the IIRS rejected the NBST’s conclusions on the following grounds.
*There is no evidence that the existence of two institutions in the environmental area causes duplication of facilities or competition for state resources;
*As the services provided by the IIRS and AFF are different, though complementary, and as they service different clients sectors, there is a reduced need for a single institution; a “developer”. The IIRS states further that such conflicts arise less frequently. The function of helping to promote the development of industry and assessing whether, and if so, to what extent, industry violates environmental standards would seem to involve a conflict of interest - in the public mind at least. This could only be avoided by the Department of the Environment, or Industry and Commerce (and industrial promotion bodies like the IDA) turning to institutions other than the central environmental agency. But this would lead to the disposal of “effort” which is the underlying rationale for the central agency in the first place. In the view of this Committee it makes more sense to recognise the conflict and provide for more than one environmental agency, so that industrialists can seek advice and avail of technical assessment in relation to their impact on the environment from an agency other than the enforcing agency. This view, however, implies that the IIRS Environmental Service should become more rather than less financially self sufficient.
80.This would leave established client relationships (between the Department of the Environment and AFF, and industry and the IIRS) unchanged and would avoid expenditure on the movement of staff and facilities from the IIRS to AFF. The essential disadvantage of this course is that in the long run, the raising of environmental standards and the increasing pressures from industrialisation, urbanisation etc. may result in some duplication of staff and facilities. The extent of this duplication could be minimised by occasional reviews, but some duplication may be inevitable if conflicts of interest are to be avoided.
81.The Food Programme of the IIRS provides services in food product development, problem solving, and quality and hygiene management. In 1984 the Programme cost £615,000,of which £200,000 was earned from fees. The Programme is, therefore, one of the smaller of the thirteen programmes run by the Institute.
82.In addition, the Programme is small in relation to the industry it serves which has a gross output valued at over £4 billion. By 1989 it is expected that expenditure under the Programme will have increased to £1,060,000 which is a rise of 72% and well above the growth rate planned for total Institute expenditure. It is also planned that the self-financing ratio will increase during this period from 33% in 1984 to about 40%.
83.The NBST found that the Food Programme was providing a very valuable service to industry (especially small firms) and was doing so on a small budget. The NBST recommended that:
*the volume of resources available to the Programme should be substantially increased;
*proposals for integration of IIRS activities with those of An Foras Talúntais were not justified but that there should be closer liaison between both institutions;
*there is a need to harmonise all state initiatives in the food area such as those proposed by SFADCo;
*the food activities of An Foras Talúntais should be reviewed within the context of a major examination of the food sector.
84.The details of the IIRS’s five year plan with respect to the Food Programme indicate a substantial increase in resources over the next five years. The 72% increase projected compares with 23% for total Institute expenditure. Despite a fairly rapid increase in revenues from fees earned by the Programme, the grant-in-aid funding for the Food Programme is projected to rise by 53% compared with an overall rise of 12% for the total grant-in-aid for the Institute.
85.No formal comprehensive review of the food sector has been undertaken along the lines recommended by the NBST. However, a Minister of State has been appointed to both the Department of Industry and Commerce and the Department of Agriculture with responsibility for the sector and a Working group of Ministers has reviewed the subject. There is also closer contact between the IIRS and AFT at senior management level on a continuing basis.
86.In the absence of a clear assignment of responsibility for the development of the food industry, the Committee is reluctant to recommend the expansion of the Food Programme planned by the IIRS. Since greater investment in Research & Standards is vitally necessary in this sector, the Committee urges an early resolution at Government level so that the job can proceed cost effectively and without duplication.
87.The Energy Programme of the IIRS comprises (i) National Energy Conservation Programme (NECP) and (ii) General Energy Services. In 1984, approximately £1,013,000 was spent on the Programme and there was a total staff of 42. The grant-in-aid for the Programme in 1985 was £405,000. Part of the fee income was a payment from the Department of Energy towards the cost of NECP. The grant-in-aid was mainly a subsidy towards the General Energy Services which are provided on a fee basis although some of the grant-in-aid also was spent on the NECP. Under the Institute’s Five Year Plan the scope of services provided under this programme will be scaled down. Expenditure will fall from £1,013,000 in 1984 to £870,000 in 1989 and staff numbers will fall from 42 to 30. The decline is mainly attributable to the reduction in the Department of Energy’s fees for the NECP. The Department of Industry and Commerce grant-in-aid is scheduled to rise from £405,000 to £470,000.
88.The NBST recommended that the NECP be drastically reduced in scale with most of the staff engaged in the NECP (or about half of the staff in the whole programme) being transferred to the Engineering Programme or to the industrial liaison function and the balance to be retained in providing General Energy Services while NECP activities would be confined to information and advice. The grounds for the NBST’s proposals were that:
*part of the NECP’s services were of a “once-off” nature and having been completed the staff involved should be reallocated.
*The NBST believed that there was substantial expertise available in the private sector to carry out the functions of the NECP.
89.Though the reasons for the rejection by the IIRS of this recommendation were not thoroughly discussed during the Committee’s examination, the IIRS Chairman did refer to difficulties in reallocating such a large number of people, in his remarks to the Committee, and added that the Energy Programme”…. is part of inter-governmental policies coordinated in Paris in the OECD”. In documents submitted to the Committee, the IIRS also argued that:
*a great deal of potential for economising in energy use still remained:
*it would be unrealistic to expect private sector consultants to undertake the functions of a national energy conservation programme because they lack the skills and equipment;
*Irish per capita expenditure on energy conservation is the lowest in the EEC.
90.IIRS has decided to transfer staff from general energy services into other operating areas. However the NECP will continue at present levels on the basis of the funding available from the Department of Energy who have commissioned this work.
91.Though the drop in fee income from NECP is put at 50% in the 5 Year Plan the drop in staff is from 42 to 30. So, while it can be said that some move is being made in the direction of the NBST recommendations the Committee considers, because of the proven high payback on investment in conservation at high oil prices industry can be expected to a greater extent in future to be in a position to respond to the economic logic of conservation where it arises without further inducements.
92.The Committee considers that the NBST report on the IIRS was timely and that its recommendations for the most part were appropriate.
93.Because of the consultative process involved in the preparation of the NBST report involving IIRS personnel it was inevitable that many of the internal proposals would find a new forum in the report. This may explain the considerable progress that has been made in the reorganisation of the IIRS since the publication of the report. The results are already apparent in the output of the IIRS.
94.The Committee is happy to note that further rationalisation, a greater focus on its remit in servicing industrial development and greater financial self-sufficiency, are provided for in the plan.
95.However, while the Committee can accept the IIRS basis for continuing to maintain certain programmes which the NBST considered should be either phased out (Energy) or transferred (Environment), that is on the basis that these programmes became self-financing in time. While that may not be within the period of the 5 Year Plan the Committee would recommend that after 1990 Government support for these IIRS programmes should no longer be available.
96.The Committee’s primary concern however, arises from the increasing risk of deficits which could be faced by IIRS as its ambitious development plan is progressed. If their market assessment of the needs of industry is correct then increased financial self-sufficiency will be the result. However, if their assessment is incorrect either because of the effects of future extraneous factors or interpretation of present trends then inevitably, the result will be growing deficits since the capacity of the organisation to change its skills, range or reduce its costs, are seriously circumscribed by being part of the public sector for purposes of pay and employment terms. This problem must be tackled if the downside risk on an otherwise satisfactory plan is to be sustainable.
Chapter 4 “A” - Building Cost Overrun - Lessons Arising
97.The major cost overruns, the high cost, the high specification and the high allocation of space per person in the new IIRS Headquarters Building,now called Technology House, is an issue that naturally concerned the Committee and was the subject of some of the discussions with officials. It was also the subject of an in-depth inquiry undertaken on behalf of the Minister of State Industry, Commerce & Tourism by officials from the Office of Public Works the Departments of Finance, Industry and Commerce, together with an outside surveyor. Though the report was not published, the Minister reported to the Dáil on its findings. The text of this report is set out in Appendix 4. In this the Minister referred to negligence on the part of the Board and Management of the IIRS and officials of his own Department in failing to have the project fully designed and costed at a preliminary stage and failure to recognise serious errors and inadequacies in subsequent reports as the project proceeded and failure by his own officials in not seeking the fullest information.
98.The Minister also spoke of his intention to discuss with the Board of the Institute the appropriate disciplinary procedures and of the procedures to be followed by semi-State Bodies under the aegis of his Department in relation to building programmes in the future. It is not clear to the Committee why procedures should differ from those provided within the regulations laid out in Circular 1/83 by the Department of Finance.
99.While the final cost of the project was £5m higher than the original £2.8m budget on which basis the project was approved the final cost overrun was officially given as £1.4m. The balance was put down to additional items not provided for in the original contract.
100.Subsequently the Institute wrote out of its capital account those elements of cost which could not attribute value to the building. This was mainly claims arising from delays and amounted to £240,000.
101.The contract for the construction of “A” building signed in October, 1978, based on an approximate bill of quantities for the construction of the core building at a cost of £2.875m. subject to price variation clause. The contract did not include a) site preparation b) fitting out the building c) design fees d) ancilliary works. The explanation offered for entering into a contract on the basis of an approximate bill of quantities was the urgency to get the work under way and this was accepted at the time by the Government.
102.This contract was linked to an earlier contract entered into by the IIRS in 1974 for Stage 1 of an overall building programme. That contract included the following conditions which form part of the Bill of Quantities and were in the original invitation to tender. “This contract is for the first phase of the proposed major development at the Institute for Industrial Research & Standards.
103.It has been estimated that the total cost of this redevelopment at present-day rates (1974) will be in the region of £3.5m. It is anticipated that this programme for the redevelopment work should be continuous over the next 5 to 6 years subject to the provision of an apprpriate cash-flow from Central Funds.
104.The contractor whose tender is accepted for the first phase will be required to undertake the next and all subsequent phases should they proceed, subject at all times to satisfactory performance by the contractor (performance with regard to quality of workmanship, materials, completion times etc.), on this or any phase and successful negotiation as to cost”.
The final cost was made up as follows:-
105.While it must be acknowledged that a significant proportion of variations can be attributed to the fact that the contract was based on an estimated bill of quantities, significant additional costs were added by a subsequent decision to acquire a computer main frame and to locate it in this building. This required the construction of a computer suite, together with air-conditioning and access floors for cabling. Ancilliary works arising from the completion of the building including drainage, railing, service ducts, security fencing etc. which were not included in the original contract, also added significantly to the cost overrun. These costs do not, of course, relate exclusively to the “A” building but rather to the IIRS campus. But since there was no other heading under which to allocate them, they were allocated to the “A” building project, adding to the overrun.
106.The major works variations related to subsequent decisions, the main elements of which were as follows:—
107.The building which has a total floor area of 7,500 square metres provides head office accommodation, the computer centre and library information centre, a conference theatre, permanent display area, electronics laboratory and the industrial one-stop-shop for North Dublin.
108.The Committee considers, in light of the statement made by the Minister to the Dáil on 30 May, 1984, that there is little it can add. It sees the main problem as one that it has referred to before in its review of major capital projects and arising from the fact that once approval is given, expenditures can be added on an annual basis whether they arise from price variations or from additional specification. In this case, the Committee is satisfied that the Insitute could have been equally satisfactorily housed within less space with a lower specification, with less sophisticated fitting out and for substantially less than the final costs of in excess of £110 per square foot.
109.The Committee considers that the Minister is obliged by his statement to the Dáil to pursue disciplinary procedures. The Committee also considers that the publication of procedures by one Department or agency which offer an alternative to those set out by the Department of Finance is inappropriate. This again raises the question of implementation of laid down procedures. The IIRS procedures as set out prior to the Minister’s initiative on this matter are set out in Appendix 3. It is immediately apparent that if the first clause in these procedures requiring comprehensive pre-planning before entering into contracts were to be applied in the case of the “A” Building Contract the problems would not have arisen.
Chapter 5 - The National Standards Authority of Ireland
110.The NBST in its report recommended the establishment of a separate standards Institute.
111.The Institute in consultation with the Department of Industry and Commerce went as far as it could under present legislation to meet this recommendation. The result is that a sub-Committee of the Board consisting of 3 members of the Board of the Institute together with 3 representatives of the Department and of industry form the board of the National Standards Authority of Ireland. For operating purposes the Authority is similar to any other operating division of the Institute though its direction is set by its board and so NSAI has less reporting accountability through management.
112.The Committee sees no reason why this arrangement cannot evolve until a suitable, satisfactory and cost effective working relationship is established between the Institute and the Authority.
113.The Authority has a budget of the order of £lm. per annum from the Institute. The Authority has in turn established a laboratory accreditation programme, ILAB, which will become increasingly necessary as standards become the norm. It will then be necessary to show that Irish standards can hold their own with international standards and this, inter alia, will require that the laboratories are capable of giving standardised results. This accreditation will become increasingly important for the work of the IIRS and hence there will be an increasing need to establish the autonomy of the Standards Authority.
114.The Committee considers that this of itself should not be taken as justifying additional public expenditure or warranting a movement from the IIRS campus. It could be met simply by providing for the funds of the Authority under a separate Vote. The Authority would then enter into a services agreement with the Institute to provide the necessary management, financial and administrative support services.
115. The most important development in this field has, however, been the dramatic increase in efficiency in determining and adopting standards. This has in many cases arisen from the simple expedient of adopting the relevant internationally approved standard.
116.The result is that over 100 standards were approved in 1985 and the target for 1986 is 180. This compares with an historical average annual output of 7 standards since the first standard was adopted.
117.The present practice is that the Work Programme of NSAI is agreed with the Department and of course an official of the Department sits on the Board of the Authority. Hitherto standards were developed when a particular firm or industry considered it necessary either so that their standards could be certified for export or where they felt threatened by the importation of sub standard goods or materials. The new arrangement provides for a comprehensive programme of evaluation of standards for submission to the Minister for his approval.
118.Publication of a standard of course offers very little protection since with few exceptions - childrens’ clothes - the standards were unenforcable and by and large, buyers including public sector buyers were not inclined to apply standards in procuring goods and services.
119.The Committee considers that taxpayers are entitled to protection by the application of standards in procurement of goods and services throughout the public sector, that Irish manufacturing industry is entitled to the support of a system of certifying that they comply with international standards and that consumers are entitled to protection from the risk of Ireland being used as a dumping ground for shoddy goods which would be excluded from other markets on the grounds that they do not comply with standards.
120.This is now feasible given the new accelerated pace of establishing standards but it requires legislation to provide for the enforcement of standards on imports and on public sector procurement.
121.In the absence of legislation even the accelerated programme of determination of Irish standards will be cost ineffective since little benefit can accrue from it. The Committee, accordingly, recommends that the necessary legislation be enacted to provide that imports be restricted or disallowed on the grounds of non compliance with irish standards which in turn will relate to international standards. It may be sufficient initially that this be enforced only in relation to health and safety consideration though other countries apply the system more extensively to regulate the quality of imports including in recent times the free importation of radioactively contaminated fresh food produce. Because of a lack of standards and legislative support some of these products could be redirected to Ireland having catastrophic effects on growers on assuming the product to be safe. This should not entail further public expenditure though it would, of course, impose another procedure on imports which apply in any event in many other countries. On the contrary, it could assist the Authority in achieving the financial self-sufficiency being pursued by the rest of the Institute by providing a basis of fee income from prospective importers who would be required to show at the point of import certification that the goods either comply with the relevant Irish or international standard.
122.The Standards Authority is also involved in the business of installing and certifying quality control procedures in Irish industry by adapting the British Standard under the title is 300 which complies with International Standards.
123.This builds on the excellent work voluntarily undertaken by Industry through the Irish Quality Control Association. The Committee considers that the Authority should fully recognise this work and build on it by considering the certificate of the Quality Control Association and the most recent quality auditor’s report. This should normally allow for some exemption of audit and some cost saving to the client
124.The Committee also considers that the system of contract audit developed by the Quality Control Association should be exploited by the Authority as its work in this field develops. Indeed it is acknowledged that IIRS who have long experience of contract auditing advised IQCA on the development of their audit system.
The history of the standards aspect of the work of the IIRS is not a happy one. Undoubtedly there are staff problems and structural problems to be resolved.
126.Irish industry and Irish consumers have paid a substantial price in unfair competition and shoddy goods for past delays and failures in this area.
127.However, the Committee is satisfied with the changes already made and the resultant dramatic increase in the production of standards. With the changes which it now recommends the return on the work of the Institute will very soon become apparent provided legislation to facilitate enforcement on the lines suggested is enacted.
128.There are now over 9,000 British standards compared with about 500 in Ireland. It will obviously take some time to build up a comprehensive standards network, though it will not be necessary to go as far as the British. An immediate step which can and should be taken is that all advertisements seeking tenders for the supply of goods to the public sector or for building contracts should specify the standards to be met where an Irish standard exists. This will encourage the publication of more standards and give an immediate pay back in terms of value for money to taxpayers.
Chapter 6 - The IIRS Annual report, Accounts and related matters
129.The Committee reviewed the published Annual Report and Accounts for the years 1982 and 1983 and the report of the Comptroller & Auditor General on them together with the figures for 1984 which are audited though unpublished. Since the 1983 Accounts were the most up to date accounts available in published form, the Committee must again note its deep dissatisfaction with the procedure that allows the report and account to be so out of date as to be irrelevant. The purpose of these reports is to report on the performance of the agency to its stakeholders both in terms of its financial and other objectives and for the Auditor to report on the adequacy of the accounting system to provide for accuracy to reflect a true and fair view of the financial status of the agency and of course to assure the shareholders against the risk of impropriety in the deployment of the resources of the agency.
130.When the shareholder is the taxpayer he relies on the Minister, his nominees on the board and the Department to which the agency reports to ensure that these requirements are met. They cannot be met by a report which is already 3 years out of date. The position is not particular to the IIRS but this Committee would again urge that immediate arrangements are made to assign clearly and unambiguously responsibility to the Board for publishing the annual report and accounts of all semi-State bodies for which this Committee has responsibility within 150 days of the year end and to give them the necessary freedom in the appointment of Auditors to enable them to fulfil their duties in this regard.
131.The accounts for the years 1982, 1983 and 1984 are summarised in Appendix 5.
132.They show up some of the peculiarities of the public sector accounting system when they are applied to a State agency when some effort is made to present accounts in a format which could sustain an Auditor’s opinion that they give a true and fair view of its state of affairs.
133.For instance, the fact that the system does not recognise stocks of plans, publications and papers results in the sale of standard specifications showing a gross loss in certain years. The same would apply to income from publications though the results are not as transparent.
134.Equally,because of the system of dealing with grants on the basis of receipts the land and buildings accounts over the years shows enormous volatility and these surpluses and deficits do not reflect accurately the financial state of the Institute at those times.
135.The 1983 accounts refer to expenses of an unquantifiable amount arising from the cost of delay in completing design work on Technology House and do not refer to fees “on a proposed Limerick Development”. The draft 1984 accounts reduce the value of the capital account by amounts totalling £365,303 to reflect this.
136.The Committee can see no reason why the costs of the building which were not reflected in the value of the building should be described as unquantifiable, nor why the amount of £125,303 in fees relating to the aborted Limerick Development were not noted earlier in accordance with the requirements of the Department of Finance of February, 1982 requiring that constructive losses in excess of £100,000 relating to write off of fees etc. be noted.
137.The Auditor’s report of the 1982 accounts approved in February, 1984 states that “it is not possible to quantify the extent of the expenditure attributable to the delay in completing the design work”. When it came to final payment,however,the difficulty of establishing the cost of the delay was overcome and a payment made at a figure agreed with IIRS and presumably the Department,paid out of public funds.
138.The Committee has reported on its examination of the building of the new IIRS Headquarters in a separate chapter, but the accounts add confusion to the figures.
139.In reviewing the accounts the Committee considers the following points in particular worthy of note:
1. As in the case of the public sector pensions are not funded so salaries and superannuation mean something different in these accounts when compared with those of another firm or agency where reference to superannuation would be taken to mean contribution to pension fund on behalf of staff. The difference is the significant future liability on the Institute to meet the pensions of present staff. The note does not establish this point though the report of the Comptroller & Auditor General does state that the accounts are in accordance with approved auditing standards which the Committee takes to include the relevant Standard Statements of Accounting Practice.
2. As in the case of other agencies funded by grant-in-aid no charge is made for depreciation. Though this is acknowledged in the notes to the accounts it is not referred to in the Auditor’s Report as is required where for some good reason depreciation is handled other than in accordance with the Standard Statements of Accounting Practice.
3. Though the Institute was given borrowing powers in the amendment of 1979 its right to exercise them is circumscribed by the requirement that it must first have the approval of the Ministers for Industry and Commerce & Finance. The Committee was informed that those borrowings are seasonal only,arising in the last quarter of the year and that the grant drawdown is so weighted as to clear the overdraft early in the new year. This the Committee considers to be a most unsatisfactory method of meeting the funding requirements of the Institute for the following reasons:-
-Though no provision is made for clearing the deficit it is in effect retrospectively approved by this device but without the logical sequiter of funding its clearance.
-Though no specific provision is made for working capital on that part of the Institute’s trading that relies on fee income there is probably too great an access to cash in the early part of the year.
-Because the pattern of seasonal overdraft to carry deficits from one year to another has been allowed to build up with the explicit approval of the Departments of Industry and Commerce & Finance as fee income becomes a growing part of the income of an expanding Institute and the risk of deficit rises this may have implications for an increasing contingent liability on the Minister.
4Though the amounts are small the Committee is concerned to note that approval is given for grants and loans (£48,000 in 1984) within the programme managements and without reference to the Board.
5.Within the figure for General Administration there is a substantial figure of £489,784 in 1984 for equipment leasing. The Committee notes that the arrangements involve a further £1m in future liabilities on these agreements and that over £2.5m worth of equipment has been,in effect,purchased through leasing agreements. These are not,of course,shown on the balance sheet and to that extent understate the public investment in the IIRS. The current payments on them is shown in the revenue account and,peculiarly,capital expenditure is also brought into the Revenue Account. The Committee understands that the funding arrangement for 1986 has been changed so that equipment will be funded out of the Capital Programme rather than out of leasing. Despite the fact that this will remove some anomalies from the accounts the Committee is of the view that leasing should be continued as it represents better value for money at the rates available to the IIRS than to borrow at the marginal cost of Exchequer borrowing. This does not take into account taxes foregone on the assumption that, if the public sector does not take up the banks available quantum of lease finance, the private sector will at the same cost in terms of tax foregone without the compensating benefit of cheaper borrowings.
However, because Exchequer borrowings are not charged to IIRS or other state agencies and the lease charges have to be met out of revenue, this must be a matter of a central directive.
If leasing is to continue to be used, however, the Committee urges that better means of accounting for equipment purchases and leasing are found than the present ludicrous arrangement of reporting of negative income for purchases and of reporting on “leased” equipment which effectively become a hidden investment in the IIRS.
6.Though the Oireachtas grant-in-aid is shown separately for capital and current purposes the total amount of Exchequer payments to the IIRS is not shown anywhere in the accounts. The total includes those two amounts together with an amount paid by the Department of Energy for the Energy Conservation Programme. Other amounts paid for metrology work by the Department of Industry and Commerce and for work on timber standards by the Department of Tourism, Fisheries & Forestry are included in fee income.
The Committee considers that it is appropriate that the accounts of the IIRS and all other State-sponsored bodies falling within its remit should show in their accounts the total amount of Exchequer funds paid to the body under whatever heading.
7.Though the annual report breaks down expenditure and income between the various programmes the accounts themselves are not divisionalised This would be a short move for the IIRS and one which this Committee would welcome.
8.The Committee noted that the Board had not appointed an Audit Committee to review its audit with the Comptroller & Auditor General. The Committee would wish to encourage the appointment of Audit Committees in the various agencies within its remit.
140.In light of the IIRS development plan the Committee considers that the annual report should be revamped to become a significant part of the drive to sell the services of the IIRS to more and more firms.
141.The Committee does not wish to make specific recommendations in this regard beyond saying that timeliness will be a prerequisite. An internal review group should be able to change the report into one which meets the following requirements:
—improve the presentation of accounts, divisionalise them and comply in full with best accounting practice.
—improve the annual report of the IIRS as a document capable of selling the services of the IIRS to industry.
—improve the annual report to report on the level of public funding the Institute enjoys and and its achievement of non-financial objectives to justify that.
Perusal of the Report and accounts also throws up a few general points on which the Committee would wish to make the following observations:—
—The published accounts available to the Committee follows a definite format which in itself is excellent in an annual report. But in this case the format is dated and warrants review in light of the objectives IIRS has set itself in the 5-Year Plan.
—IIRS has been a victim of public sector financial stringency in recent years. In particular, changing decisions with changes of Ministers and Government seem to be the primary cause of the substantial write off of £125,000 relating to the proposal to establish the IIRS Electronics unit in Limerick. The subsequent establishment by SFADCo of a separate State-sponsored Electronics Body in Limerick (MAC) led, not only to this to write off, but also, to some duplication of effort and a distinct need for rationalisation.
—The IIRS also like so many other State-sponsored bodies participates in DevCo, the Agency established to sell Irish technical and management services to the Third World. While reference is made in the annual reports to these activities no separate accounts are presented though the main justification for such activity might be to broaden staff experience and generate additional income.
—The NBST in its report refer to duplication between An Foras Forbartha and the IIRS in relation to the Environment Programme. The industry most threatened by pollution is,of course, the fishing industry and the Committee would be much more concerned about duplication or lack of liaison between the agencies responsible for this aspect of the fishing industry and the IIRS and would urge that this matter be attended to.
143.The Committee is also concerned to note that although advised that the Galway Biochemicals Programme is closed down it is still a cost centre for the IIRS while it awaits a response from the Minister for Industry and Commerce to a proposal which is now over two years in existence.
144.The Annual reports make occasional reference to EEC grant funding for various programmes yet the accounts make no reference to them. It is assumed that such grants are included under the heading fees. The Committee considers this inappropriate and would wish to see grant income from EEC and other sources separately accounted for.
145.Some at least of the work of the IIRS on behalf of industrial clients is in turn funded by Research and Development Grants by the IDA and the other industrial promotion agencies. While it is neither possible nor appropriate that the IIRS accounts seek to separate the level of public funding from which it is benefitting in this indirect manner it is nevertheless pertinent in establishing the extent to which the growing financial self-sufficiency of the IIRS planned over the next five years depends on maintaining or increasing grant levels to industry for industrial research programmes. The Committee would commend this matter to the attention of the IIRS when they next undertake a survey of their clients.
146.The Committee’s concern about the accounts are not particular to the IIRS but are nonetheless acute and are the subject of recommendations in this and other reports.
Conclusions and Recommendations
147.The Institute for Industrial Research & Standards plays a very important part in providing a support infrastructure for industrial development. Through the Sixties and Seventies because of the emphasis on industrial development, through the inducement of exogenous industries it may not have been called on to the extent that was appropriate to the pace of industrialisation. This may help to explain the gap that seemed to emerge between industry and the Institute. The 1984 White Paper on Industrial Policy put a new emphasis on indigenous industry and on the role of the IIRS.
148.The Committee is happy to note that even over the short period of its review which was commenced in 1984, dramatic progress has been made in the reorganisation and streamlining of the Institute and its revised 5-Year Plan sets about reducing its dependency on public funding by focussing its services on those areas where industry is willing and able to pay without losing sight of its vital developmental role both in relation to the application of technology and standards.
149.The Institute is one of an array of State agencies which is provided with public funds to undertake research and development work relating to Science & Technology. The total public expenditure on this area is in excess of £300m. It is worth nothing that agriculture received over 25% of that budget while industry receives 14%. While this may give rise to some concern about the apportionment of very scarce resources between the various agencies and sectors it is outside the remit undertaken by this Committee in examining the IIRS as a separate entity. Nevertheless since the question of duplication and overlap arises within this review, the Committee considers that the question of apportionment should be seriously examined in the context of the wider annual Science & Technology budget review undertaken by N.B.S.T.
150.The IIRS is primarily a tool of industrial development and the Committee is very pleased to note over the past year the reorganisation and increased emphasis to this end.
151.Apart from this question of the apportionment of the publicly funded Science & Technology budget the Committee’s primary concerns arose in the following five areas:—
- The repetition by the IIRS of the mistakes of others undertaking major capital projects without adequate pre-planning, controls or adherence to the laid down procedures.
- The very slow progress of the IIRS up to recent times in the development of standards for industrial products and the lack of legislation and use of standards in public sector tendering to yield a benefit from the greatly increased efficiency of the Institute in this aspect of its work in recent years.
- The long delay in the auditing and publication of annual reports and accounts and in common with many other State agencies within the remit of this Committee the poor format of the accounts and the inadequacy of information on the extent and deployment of public funds and non-compliance with certain standard statements of accounting practice.
- The unsatisfactory temporary and recurring manner of dealing with the IIRS deficit, the lack of provision for working capital and the intention to replace equipment leasing with funds borrowed by the Exchequer at higher cost.
- Most seriously of all, the Committee is concerned at the extent to which the management of the IIRS is circumscribed in the deployment of specialist personnel in the fast changing world of industrial R & D by being bound into public sector pay and conditions. The result within the life of the present Five-Year Plan could be substantial deficits if the level of budgeted fee income does not materialise.
152.The following recommendations are made with a view to effecting improvement in these areas of concern:—
Managing Major Capital Projects
1. The Minister should follow through on the statement made to the Dáil in May, 1984 on what he described as “appropriate disciplinary procedures” arising from the £5 million difference between the original budgeted and final cost of the new headquarters complex. This should not stop at the board and management of the IIRS as officials within the Department also clearly share responsibility in the matter.
2. The Committee could not establish a clear responsibility for State sponsored bodies in the Department of Finance Circular 1/83. It recommends therefore that it be revised to establish separately the responsibility of State agencies and the Departments to which they report in relation to the development, evaluation, planning and management of capital projects and the guidelines should then be fully and comprehensively observed in all cases without exception up to the stage where it is a matter for Government decision. Some clarification in the redrafting of Circular 1/83 would help in this regard.
3. The initiation of the planning process for capital projects should require specific approval from the Department of Finance and the planning process should not normally be carried over from one year to another without a further approval to extend the enquiry in specific areas. This may avoid commitments to projects which are later dropped with consequential write off of planning costs.
4. Responsibility should be put squarely on project promoters to indicate how they justify adding to Exchequer indebtedness and in the case of projects in excess of £10m. the project proposal document should be placed before the Houses of the Oireachtas making this case.
153. These recommendations, with the exception of the first, are not specific to the IIRS and indeed have been made by this Committee in previous reports where overrun on capital projects has arisen. That only serves to highlight the need for immediate action.
154.- In the implementation of quality standards the Institute should seek to build on the work of the Irish Quality Control Association by giving appropriate exemptions and availing of the latest quality audit report where this is consistent with complying with international standards.
- The Institute should seek to develop its quality audit corps on a contract basis in association with the Irish Quality Control Association.
- An appropriate process should be developed providing for consultation with industry before standards are adopted.
- The Department should provide through a separate vote for the approved budget of the National Standards Authority of Ireland provided it enters into a management services contract with IIRS.
- The Government should, as a matter of urgency, authorise the drafting of legislation to allow the enforcement of standards on imports and on goods manufactured in Ireland.
- Meanwhile the Government should direct all those inviting tenders which will be paid for out of public funds to indicate the standards required where approved standards exist.
155.These recommendations are designed to ensure that Irish consumers including the Public Sector can benefit from the work of the IIRS and that imports can be regulated on the basis of quality thus assisting indigenous industry provided their quality complies with the approved standards.
Annual Reports & Accounts
156.The IIRS should establish an internal review group to revise the format of the Annual Report and Accounts.
-to ensure its effectiveness as a marketing medium for the Services of the Institute.
-to increase awareness of the level of public funding provided and the value received in return.
-to comply with best accounting practice and particularly to observe fully the Standard Statements of Accounting Practice.
-to provide divisionalised accounts and to account separately for grants, public funding other than the grant-in-aid and external activities such as the sale of services through Development Co-operation and to distinguish between development work undertaken with the support of grant in aid and work undertaken at a loss.
157.The Government should direct that responsibility for the publication of the annual report and accounts of State agencies within a period not exceeding 150 days of the year end rests on the Board of Directors and the necessary uthority in the nomination of auditors should be given to the board to ensure that this can be complied with. It is evident from an examination of the most recent accounts available for agencies within the remit of this Committee,that it is not possible within the present system relying on Local Government auditors or the Comptroller & Auditor General to comply with this 150-day limit which should be seen as an absolute maximum.
Dealing with equipment, the deficit and the working capital requirement
158.The Committee recommends that equipment leasing be more extensively used by State agencies as a means of financing where it is more cost effective than conventional Exchequer borrowings. Because of the legal distinctions between hire purchase and leasing and because of the difficulties for agencies in funding capital expenditure out of current income, the Committee recommends that the Department of Finance examines the feasibility of undertaking a large block of lease finance from financial institutions to be taken up as appropriate by different agencies on various approved equipment purchases of which they would become the eventual beneficial owner. This approach should mean not only cheaper borrowings but should also resolve the accounting anomalies and perhaps the reluctance to use leasing as it is now available.
159.The Minister for Finance has already publicly stated that he is not the guarantor of the borrowings of Government agencies except where guarantees are explicitly given. In these circumstances it is recommended that the IIRS accumulated deficit be cleared by a special grant-in-aid and that its borrowing powers be strictly limited to an agreed working capital provision.
The downside risk for semi-State body pursuing financial self-sufficiency
160.The IIRS Five-Year Plan is commendable in its targets to increase its own financial self-sufficiency. In fact the Committee would encourage it to increase its objectives in this regard. However because job security, pension and pay are set in the public sector context and the full knock on effects of arbitration awards arising elsewhere are felt in the I.I.R.S. they may not always be competitive no matter how efficient or how expert they become. The Committee recommends that any future specialist staff recruited by the Institute be on fixed term contracts only and that special provision be made for affecting redundancies where the need arises because of changes in circumstances that would remove the need for a particular section, expertise or specialism.
161.The Committee believes that the I.I.R.S. plan is feasible only if these additional flexibilities and freedoms can be given to its management.
162.A number of other issues also emerged in the course of the Committee’s review of the I.I.R.S. not related to these five points of major concern. The following recommendations relate to them.
- A suitable agency agreement should be prepared as the basis on which MAC, the Microelectronics Centre established by SFADCo at Limerick transfer accountability to the IIRS.
- The IIRS should be authorised to establish a new national fire testing facility which should initially be funded by the Department of the Environment but should develop over a 5-Year period to recover a large part of its cost in fees.
- The IIRS is an ideal medium for the promotion of new technology and new product development which is a major determinant of the pace and sustainability of industrial development. It should become more involved in the relaying of international developments in Ireland through the arrangement of international patent and trademarks for Irish development and a clearing house for franchise and licence arrangements for the manufacture of promising products in Ireland. And it should have the necessary support to establish new service units requiring new expertise where opportunities arise.
- The Committee recommends that to this end the IIRS be given special responsibility and authority to seek out new products and processes relevant to Irish industrial development and a special budget allocation for which they would be separately accountable.
- The Committee is satisfied that the IIRS should press ahead with its own environment programme and in so doing should liaise closely with the agencies responsible for Fisheries development and an Foras Forbartha.
- The Committee is, however, concerned that developments on the food programme and particularly the proposed link up with an Foras Talúntais will not yield a satisfactory result until Ministerial responsibility for the development of this industry is fully clarified and the related administrative adjustments are in place.
Accordingly, the Committee recommends that the question be finally resolved by Government as a matter of urgency and that no further expenditure in terms of personnel or equipment be undertaken by the IIRS until the position is clarified.
163.The IIRS must be judged primarily on its effectiveness as part of the support system for industrial development. Accordingly, the Committee recommends that, under the auspices of the Management Committee on industrial policy, a review be undertaken every five years at least of each agency, including the IIRS, with a view to ensuring that its working arrangements with the other agencies are satisfactory and that its own skills and expertises are responding appropriately to changing needs.
164.The Committee’s Review of the IIRS commenced in 1984 with a request for information in the form of a response to a comprehensive questionnaire. This continued through 1985 with seven meetings with the Chairman and other officials of the IIR.
165.Towards the end of this series of meetings the Committee met the Chief Executive of the IIRS following his appointment. The Committee then decided to suspend their review until such time as the new 5-Year Plan and the new organisational pattern emerged for the new management.
166.It is now clear that the Government must respond if the public expenditure incurred through IIRS is to yield value for money. In the course of this report a few of the areas in which a Government response is a prerequisite to a tangible benefit arising from the increased efficiency of the IIRS are mentioned.
167.Chief among these are:—
- New legislation for the enforcement of standards on goods imported and offered for sale in Ireland.
- A directive by Government that all public sector procurement should be undertaken against standards.
- A decision by Government as to where Ministerial responsibility for development of the food industry rests before the IIRS either develops its own programme or pursues further the proposed association with An Foras Talúntais in this regard.
- new arrangements for equipment leasing
- new authority and responsibility vested in the Boards of State-sponsored bodies relating to the timeliness of the annual reports and accounts.
- the necessary disciplinary action referred to by the Minister of State at the Department of Industry, Trade, Commerce & Tourism in the Dáil when reporting on the cost overrun on the new IIRS headquarters.
168.But that is not to say that the IIRS does everything as it should be or that it is making the fullest impact possible in present conditions on its remit. Productivity and relevance will become increasingly important to the Institute over the next five years as it pursues a strategy of increasing financial self-sufficiency. This is something which must be recognised by the Board and all the staff of the Institute and management must be given the necessary authority to achieve and sustain both productivity and relevance. Neither this Committee nor the taxpayers it represents can condone the allocation of scarce public resources to any organisation which is not geared to use them efficiently for the achievement of worthy and necessary national objectives.
169.There is no doubt that the remit of the IIRS is a worthy and necessary one in national terms and that considerable progress is apparent even over the period of this review in improving organisational structure and increasing efficiency. But this process must continue.
170.The Committee was greatly helped in its work by the existence of a major review of IIRS undertaken by NBST at the request of the Government. The Committee had access to this report and to NBST staff responsible for it who gave evidence before the Committee.
171.The Committee also heard evidence from officials of the supervising Department and from the Chairman and Director-General and other officials of the IIRS. The Committee received submissions on behalf of IIRS staff and had informal consultations with these officials and others in the course of the preparation of this report.
The Committee wishes to record its appreciation and thanks to all of those who assisted in this review and to express the hope that this report will result in actions which will in turn increase the cost effectiveness of the public funds allocated to the IIRS now and in the future.
Michael Keating T.D.,
1 July, 1986.