The Minister is satisfied that these arrangements are adequate to facilitate Parliamentary oversight of PPPs.”

Following this response, the Committee decided to investigate the way in which similar projects are dealt with in other jurisdictions and has undertaken to conduct a comparative study so that it would be in a position to make firm recommendations, based on international best practice.

To this end contact was made with EUROCONSTRUCT contacts in 19 European countries. However, it was found that many construction experts are not at all familiar with the finer detail of accountability of the PPP vehicle. It was also decided that it was probably most instructive to look at the countries with the most developed PPP portfolio, namely the UK, Australia and Canada. The Australian experience was found to be particularly educational.

The PAC in recent years has held several plenary sessions relating to significant PPP projects. These meetings of the committee were informed by particular chapters of the annual reports of the Comptroller and Auditor General, as well as a number of Value For Money reports that also emanated from his office. Among the projects examined have been

• The West Link Toll Bridge/M50;
• The Grouped Schools Project;
• The Cork School of Music; and
• The Beaumont Hospital Car Park

While the circumstances applying to each of these projects vary widely, and the history of each differs, some common threads have appeared. The largest common factor has been the frustration expressed at the Committee of either not having appropriate access to information relating to these projects, or being publicly unable to refer to information deemed to be commercially sensitive. This committee believes that this obstacle needs to be overcome. Public accountability and value for money are very important issues.

It should be noted that the National Development Finance Agency (Amendment) Bill 2006 is currently proceeding through the Houses of the Oireachtas. If enacted it would provide a statutory framework for the oversight of many PPP projects. This report outlines further approaches to oversight that exist in other jurisdictions and should also be adopted here.

Section 2, sets the scene by briefly looking at the PPP experience in Ireland and in selected countries in Europe and beyond.

In Section 3, examines the access to the private aspects of PPPs to PACs in a number of countries.

Section 4 contains draft recommendations, including suggestions for future study.

Section 2 PPP Experience in Ireland and Selected other Countries

2.1 European PPP Experience

In 2004 and 2005, around 206 PPP deals worth approximately US$52 billion/€42 billion were closed in the world, of which 152 projects with a value of US$26 billion/€21 billion were in Europe (in this case referring to the EU Member States, the EU acceding countries (Bulgaria and Romania), the EU candidate country Turkey, and Norway). From January 1994 to September 2005, it is estimated that PPP deals with a value of approximately US$120 billion/€100 billion closed across Europe. Of these deals, two thirds closed in the UK, with the other PPP hotspots of Spain and Portugal accounting for 9-10% each.

The UK showed substantially more PPP activity than the rest of Europe with 118 deals closed in 2004 and 2005, with the next most active PPP market – Spain – closing 12 deals during the same period.

The first chart shows the state of PPP development in the EU 15 countries.

Many countries start using PPPs in the provision of road infrastructure, moving on to their use in other sectors, such as water and waste treatment, education, health, energy.

The chart shows that roads and water and wastewater were the most frequently used sectors across the sample of countries. These are the two sectors where Ireland has a substantial number of closed projects. The UK is the most advanced country with respect to PPP (PFI) use, having substantial numbers of closed projects, the majority of them in operation.

PPPs in EU 15 Countries

While the UK closed the greatest number of PPP deals in 2000-2005, if PPP activity is considered as a percentage of GDP, Portugal has the greatest involvement with PPPs relative to its GDP, with Ireland ranking third. Hungary and Greece also have high levels of PPP usage relative to Gross Domestic Product as the next figure shows.

Average 2000-2005 PPP Activity as a Percentage of Mean GDP

In the Coalition Agreement document of 2005, the German Federal Government’s coalition partners CDU/CSU and the SPD agreed to introduce new legislation in early 2007 to facilitate new PPP projects and simplify the bureaucratic process, for which a PPP Task Force was set up by the Government. A vote on the new legislation is planned for April 2007.

However, concerns have arisen among the President and Vice President of the Courts of Auditors at how the PPP procedure is currently being handled, in particular in relation to what long-term risks and obligations were presented to the Exchequer by PPP investments.

On foot of this a Parliamentary Question was asked on 12/02/2007 detailing concerns about the degree of transparency. No response from the Government has yet been made. (Source: German Bundestag; 2006 Annual Report of the Bundesrechnungshof)

2.2 Outside Europe: PPP Experience in Australia, Canada, Japan

The chart shows that Australia is one of the most advanced countries with respect to the use of PPPs, having substantial number of closed and operational projects in the airports, ports and roads sectors. Prisons and water and wastewater projects are also very advanced.

Japan has concentrated its PPP projects in the sectors of central accommodation (i.e. government offices) and schools.

The United States by contrast have only reached procurement stage in the prisons, light railway and water & wastewater sectors, with most other sectors at ongoing discussions stage.

PPPs in Non EU Countries

Section 3 Public Accountability of PPPs – International Experience

Introduction:

The monitoring of PPPs takes place at several levels. The fundamental level is the relationship between the public sector’s operational team – say from within the Department of Health and the private company. Recent studies on operational PPPs and PFIs in the UK have found that authorities were surprised by the level of input required of them in contract monitoring. It was frequently seen as substantially higher than had originally been anticipated. This was both in terms of the local authority team and also with users (e.g. in schools by school staff). Respondents to a survey by PUK questioned whether this level of resource was sustainable over the typical 25 year life of a contract. Since most projects operational in the UK at the moment have only been up and running for a few years, it is not yet clear if these concerns will be borne out.

The former Auditor-General of the State of Victoria in Australia indicated that he was concerned about the ongoing oversight and monitoring arrangements for PPPs, and the potential to lose corporate memory over the life of the contract:

Typically … project teams are established …However, once the arrangements are established and operating, these teams generally are dispersed, with a resultant loss of detailed knowledge of the arrangements. This represents a major issue impacting on the effective ongoing oversight of the arrangements … A further issue that emerges from these long term ‘outsourcing’ arrangements is that, over time, there is a loss of expertise in the effective oversight of these arrangements given that the State may no longer be involved in areas similar to those subject to PPPs, and therefore individuals responsible for oversight functions may not fully appreciate the associated management issues. Therefore, it is important that effective strategies are developed by the public sector to mitigate these risks. This is particularly important given the public sector’s ongoing duty of care associated with key aspects of public sector service delivery.

To address community concerns about the lack of transparency and accountability of PPP projects, most governments have strengthened governance processes and systems for evaluation and review.

Given that corporate memory tends to be short term, it is of particular importance that elected representatives are fully informed and have access to all relevant information. However, the access to Commercial-in-confidence information by public representatives and the public still remains a contested issue.

Below is a summary of the mechanisms for public accountability in place in a number of countries which have had considerable experience with PPPs.

3.1 United Kingdom

The UK has continued to widen its use of PPPs across a number of sectors. According to UK Treasury figures, over 450 deals with a value of more than £34 billion (approx. €50 billion) were signed between 1999 and 2004. A number of big ticket schemes are being procured such as the widening of the M25 (circa £2.0 billion/ €3 billion), Ministry of Defence Military Accommodation (circa £2.5 billion/€4 billion) and a number of large hospitals. But equally significant has been the growing use of PPPs, sometimes on a grouped-together basis, to procure smaller facilities such as the Building Schools for the Future programme with an estimated capital investment of £2.2 billion (€3.25 billion) to be shared between the first 2005-06 wave of 180 schools and the National Health Service’s Local Improvement Finance Trusts programme, with about 51 projects, of which approximately 36 projects have closed. There are a large number of operational facilities that have been delivered using the PFI structure. However in spite of this considerable activity, PPPs represent a relatively small proportion of public sector investment in public services.

The UK Government has introduced a number of reforms to enhance the transparency of PPPs and PFIs and accountability, including publishing estimates of future payments for each PPP/PFI and publishing the capital value of contracts signed to date and in the process of being procured. Much of the information on PPPs/PFIs is available through the HM Treasury website, including an online database of projects.

In order to improve further the transparency of future deal flows, departments will, from the 2007 Comprehensive Spending Review, publish all Stage 1 value for money assessments that are undertaken in order to determine their likely PFI spend on programmes.

The UK Department of Health’s approach to contract summaries is based on a template that specifies the information that should be provided, including:

• Background details, such as the project specification, investment objectives and the expected timing of key dates;
• Project details, such as the total capital cost, the scope of facilities management services included in the contract and details of the consortium partners;
• Capacity details, such as demand assumptions and scope for future flexibility;
• Staffing/TUPE (Transfer of Undertakings (Protection of Employment)) details, such as the number and timing of any staff being transferred or seconded to the consortium;
• Financial details, such as the unitary charge amount and the indexation basis; and
• Other key details, such as derogations from the standard contract and the terms allowing deductions from the unitary charge.
• The Department’s disclosure is based on the principle that it should ‘respond positively to requests for information’ where possible.

Other UK Departments are being encouraged to operate under the same guidelines as the Department of Health so that:

• the outline business case for projects will be published on the website of the procuring authority within three months of final approval; and
• the strategic business case for projects (bar commercially confidential information) will be published on the website of the procuring authority within three months of financial close.

The UK PAC committee members can ask witnesses to attend a session if the National Audit Office does not provide the information sought. We were told that they have not tended to have had a major problem with private partners withholding requested information, at least at the operating company level.

Indeed the UK business community has been reported as not being opposed to information about contracts being available to the public on the web. However, it was also alleged that PFI projects were the only game in town. If departments did not follow this route then projects were unlikely to receive funding. Thus there was a clear need for a public interest test.

As we have seen above, the UK is in an advanced position with respect to PFIs in all sectors of the economy, involving a substantial number of closed projects, with the majority of them in operation. This gives rise to a different set of problems, among them the issue of refinancing and of the possibility of massive financial gains for the private partner. The PAC took evidence on this issue in recent months.

3.2 Australia

PPPs in Australia have been used to deliver economic infrastructure such as toll-roads, with the private sector taking full market risk, and social infrastructure such as hospitals, prisons and schools, which are based principally on payments for availability and Key Performance Indicators. Full adoption of the PPP model varies considerably across jurisdictions. Victoria and New South Wales (NSW) are at the forefront. Queensland, Western Australia and the Northern Territories have each completed one PPP.

3.2.1 Victoria

The Victorian Public Accounts and Estimates Committee (PAEC) does not have direct access to all the information held by the private sector consortiums. They have conducted a study specifically on the issue on Commercial-in-confidence and the public interest.

Some of their key findings included:

• Claims based on commercial confidentiality are now being used too broadly by the public sector as a means of preventing disclosure of a wide range of information.
• One of the options for treating commercially sensitive material would be recourse to the Freedom of Information Act.
• The legislation governing the private sector (i.e. management responsibility for information disclosure to shareholders) has demanded growth in volume, frequency and quality of information that publicly listed companies are obliged to provide to shareholders, notwithstanding arguments about the commercial sensitivity of that material. Since the goals and obligations of government to the public are broader than those of an ordinary commercial company to its shareholders, the range of information that is publicly available must be broader for government activities.
• Thus, parliamentary committees and the Auditor General should have the legislative authority to report commercial in confidence material when it is in the public interest for the information to be revealed.

In its most recent report, the PAEC made some more concrete proposals with respect to accountability arrangements.

Recommendation 11 The Victorian Government should:

1. Improve opportunities for parliamentary oversight of public private partnership financial arrangements and commitments;
2. After the contractual arrangements relating to a public private partnership project have been finalised, the responsible Minister and the Department of Treasury and Finance brief the Public Accounts and Estimates Committee on the details; and
3. Advise Parliament when significant variations are made to a PPP contract, beyond the initial contractual arrangements. (PAEC 2006, p. 105)

Recommendation 12 That:

1. prior to tenders being submitted for public private partnership projects, agencies should ensure applicants are aware of the limits of what will and will not be considered as commercial in confidence in relation to PPP contracts; and
2. In determining whether a claim for commercial confidentiality is justified, the onus of proof should be with the tenderer, who should be required to substantiate that disclosure would be harmful to their commercial interests. (PAEC 2006, p. 105)

Recommendation 13 That:

1. After public private partnership contracts are signed, the contracts are published on the Partnerships Victoria website within three months;
2. A succinct (approximately three page) summary of the contract and a value for money report be prepared, modelled on the British Columbia value for money report
3. The Victorian Auditor-General review the details included in the contract summary and certify that it is an adequate reflection of the terms and conditions of the contract and arrange for the publication of the statement on the Partnerships Victoria website. (PAEC 2006, p. 117).

The Executive Officer of the Victorian PAEC indicated the following:

• Many of the recommendations made by the committee in its 2006 report have been taken on board by the government.
• As recommended above, sometime after the PPP contract is signed it is put on the internet; although there can be a considerable delay in this occurring up to six months). Certain information can be blacked out because it has been assessed as commercial in confidence.
• The Committee has the power to take evidence from the private sector consortium but they may decline to answer questions that are commercial in confidence.
• The Auditor-General has access to documentation that the Committee cannot access for example Cabinet material, and the full details contained in a PPP contract. In addition, the Auditor-General can access private sector records - although this is unusual - and report to Parliament on any administrative or financial issues relating to the deal. However, the Auditor-General can not report to the public on any aspect of the policy.
• The PAEC can also ask questions about PPP arrangements during estimates hearings - public hearings that are held with all Ministers and senior public officials to review the government's budget - including following up with written questions and then reporting on these matters to the Parliament.
• The Committee's October 2006 report provides a practical solution particularly the suggestion that the Auditor-General should have a role in determining whether certain information is legitimately commercial in confidence.
• One way that the PAEC has been able to overcome some of the problems with commercial in confidence material and hence the restriction on publication is to negotiate with the agency/individual/business on some wording that would be mutually acceptable. This usually means excluding specific details and including general information.
• While parliamentary committees are able to take evidence in private about commercial in confidence matters, they are unable to disclose the information. This restriction means that the Committee can not release information or documentation even though it may be in the public interest. Thus a committee can inform itself fully on an issue, but is unable to use the information.

3.2.2 New South Wales

The Public Accounts Committee of New South Wales does not have an ongoing role in scrutinising particular PPP projects. However, the Committee has conducted a number of inquiries into PPPs over the years, most recently in June 2006. The issue of public availability of information about the private elements of contracts was an issue during this inquiry and the Committee recommended increasing the level of disclosure of information to the public.

The Committee expressed the view that contracts should eventually be disclosed in their entirety, which would allow ongoing assessment of a Project and reassurance to the community that the public interest is being maintained.

The Committee stated that it is able to call for papers, people and things under the Standing Orders and it has used these powers in the past to require people to produce information. While it does not routinely use these powers to seek particular information about PPP projects, in 2005, when the Committee investigated the comparative value for money from publicly and privately operated correctional centres, the private operator of a centre voluntarily provided complete information to the Committee on a confidential basis.

The reports of these inquiries and the government responses can be found on the Committee's website: http://www.parliament.nsw.gov.au/publicaccounts

The NSW Government's guidelines for the publication of information about PPPs (called Privately Financed Projects there) were updated as a result of the Committee's 2006 report.

The Parliament of New South Wales is bicameral. The upper house, the Legislative Council, frequently calls for the Government to table papers about confidential matters such as contracts for major PPPs. These are often only available for inspection by members of that house.

All PFPs are subject to Ministerial Memorandum No.2000-11 and the Freedom of Information Amendment (Open Government—Disclosure of Contracts) Bill 2006, as amended from time to time, which sets specific disclosure requirements arising from NSW Government tenders and contracts.

Taking the example of a PPP schools project, the following related documents are included:

Detailed below are the items to be disclosed for all contracts and for contracts over $5 million Australian. However, as Schedule 3 shows, there is still a considerable list of commercial in confidence information listed.

NOTE: In addition to these guidelines privately funded public infrastructure projects will still need to comply with the disclosure guidelines set out in the Guidelines for Private Sector Participation in the Provision of Public Infrastructure.

3.3 Canada

After a lengthy development process, the PPP model is gaining ground in Canada. The provinces of Alberta, Ontario and British Columbia have been the most active supporters of the PPP framework while interest in Quebec is also growing. British Columbia has seen the most activity having successfully closed eight transactions since mid-2004. Activity has been driven by the need to expand social infrastructure within budget constraints. In June 2002, the province established Partnerships British Columbia (PBC), created to provide “public agencies with expert advice and support to explore and, where supported by a sound business case, to implement P3s (PPPs) and other innovative approaches to provide public infrastructure and services”.

British Columbia

The following arrangements apply in British Columbia where, after the financial close on all PPP projects:

1. A value for money disclosure report is published. This report describes the rationale, objectives and processes that led to the decision to use the PPP option. It explains how value for money was measured and how it is expected to be achieved in the context of current market conditions. It also includes a risk allocation summary and key terms on the contract;
2. Fairness and probity opinions for large projects are published; and
3. The Auditor General reviews the value for money disclosure report prepared by Partnerships British Columbia and assesses whether the report fairly describes the context, decisions, procurement processes and results to date of the project and publishes his report. After the agreement is finalised, the contract is published with a summary that includes the financial details and obligations of both parties.
   An example of such a project report is Achieving Value for Money Kicking Horse Canyon – Phase 2 Project, published on the internet in June 2006. It runs to 22 pages and contains a high level of detail including:
   
   • Procurement timetable
   • Evaluation details, including the report of a Fairness Auditor and a Conflict of Interest Adjudicator
   • Competitive Selection Costs
   • Key terms of contract including performance payments, financing and risk allocation summary
   • Value for money, including how the taxpayer is protected from a cost-overrun
   • Contract Monitoring and performance

The Victorian PAEC was particularly impressed with the arrangements that apply in British Columbia. It used it as an example of steps taken by a government to improve the transparency and accountability of PPP arrangements and to demonstrate that community interests are being protected.

Section 4 Conclusions and Recommendations

When compared to the three countries listed in Section 3, Ireland has still a long way to go with respect to public accountability. The experience in these countries is summarised below.

United Kingdom

The UK government has responded to criticism of its extensive PFI programme by enhancing transparency and accountability.

The UK Public Accounts Committee can ask witnesses to attend sessions if the National Audit Office does not provide the information sought.

Australia

The Victorian Public Accounts and Estimates Committee (PAEC) has been very active in pursuing the right to access PPP information over the years. The Victorian government puts PPP contracts onto its website after they have been signed, even though this can still take longer than the recommended three month period. In addition the PAEC can ask questions about PPP arrangements during estimate hearings. They are trying to overcome the commercial in confidence clause by directly negotiating with the private partner on wording that might be mutually acceptable. They can also take evidence in private about commercial in confidence matters, but are unable to release that information or documentation even though it might be in the public interest.

In New South Wales all PFPs (Privately Funded Projects) are subject to the Freedom of Information amendment Bill 2006 which sets detailed disclosure standards. In addition, the New South Wales Public Accounts Committee is able to call for papers and people and has used this power in the past to attain information about PFPs.

Canada

In British Columbia, detailed project information is placed on the web after close of contract. The Auditor General reviews the value for money disclosure report. Evaluation details are also published.

The Committee has taken some account of international experiences in formulating its recommendations.

Recommendations

1. Consideration should be given to overcoming difficulties in relation to the Committee’s access to commercially sensitive material by legislative means.
2. The future liabilities associated with PPPs should be computed and a transparent means of accounting for them should be developed in line with best practice.
3. Value for money should remain the sole justification for the consideration of PPPs in Ireland.
4. Contracts should eventually, after an appropriate time interval (say three months after completion) be disclosed in their entirety which would allow ongoing assessment of a project and provide reassurance to the public that their interest was being respected.
5. Commercially sensitive papers relating to contracts on major PPPs should be available for inspection by members of the PAC on a confidential basis where necessary for the discharge of the Committee’s functions.
   

   The thrust of the following recommendations made by the PAEC of Victoria (2006) are equally appropriate in the Irish situation.

   
   
6. Prior to tenders being submitted for PPPs, agencies should ensure applicants are aware of the limits of what will and will not be considered as “commercial in confidence” in relation to PPP contracts.
7. The onus of proof whether a claim to commercial confidentiality is justified should be with the tenderer. It should not be up to the public body. The Comptroller and Auditor General should have the last word in this decision.
8. After the contractual arrangements relating to a PPP project have been finalised, the relevant Department and / or the National Development Finance Agency should, if requested, make themselves available for briefing the PAC.
9. When a private consortium is entering into a PPP it should be aware that it will be open to scrutiny by the PAC on the element of its business that relates to the PPP.
10. Provision for periodic measurement of the performance of a PPP should be built into contractual arrangements.

The ever increasing reliance on PPPs for the provision of infrastructure in Ireland as evidenced by the recent National Development Plan 2007 to 2012 indicates that this is an area of growing importance for the PAC.

The public interest would be greatly served by further study into the following areas:

Analysis of the rationale for the PPP allocation in the various parts of the latest NDP




Examine the need for the extensive use of PPP at a time of exceptional exchequer buoyancy




Value for money assessment on a sample of PPPs across the sectors




Examine the alleged benefits of a sample PPP project over an appropriate time period when compared to a conventionally procured project in the same sector.




Evaluate the respective roles of the NDFA, CAG and the sponsoring agencies with a view to assessing whether there are sufficient structures in place to safeguard taxpayers’ money/public interest.




Periodic review of international developments in the field of public accountability of PPPs.

¹ Interim Report on hearings on Transport of the Committee in the period October 2003 to July 2004, p 49