Session 2008/2009

Second Report

PUBLIC ACCOUNTS COMMITTEE

Report on Sea Fisheries:
Vessel Modernisation and
Decommissioning Schemes

Together with the Minutes of Proceedings of the Committee
relating to the Report and the Minutes of Evidence

Ordered by The Public Accounts Committee to be printed 11 September 2008
Report: 06/08/09R Public Accounts Committee

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Membership and Powers

The Public Accounts Committee is a Standing Committee established in accordance with Standing Orders under Section 60(3) of the Northern Ireland Act 1998. It is the statutory function of the Public Accounts Committee to consider the accounts and reports of the Comptroller and Auditor General laid before the Assembly.

The Public Accounts Committee is appointed under Assembly Standing Order No. 51 of the Standing Orders for the Northern Ireland Assembly. It has the power to send for persons, papers and records and to report from time to time. Neither the Chairperson nor Deputy Chairperson of the Committee shall be a member of the same political party as the Minister of Finance and Personnel or of any junior minister appointed to the Department of Finance and Personnel.

The Committee has 11 members including a Chairperson and Deputy Chairperson and a quorum of 5.

The membership of the Committee since 9 May 2007 has been as follows:

Mr Paul Maskey*** (Chairperson)
Mr Roy Beggs (Deputy Chairperson)

Mr Thomas Burns**
Mr Trevor Lunn
Mr Jonathan Craig
Mr Mitchel McLaughlin
Mr John Dallat
Ms Dawn Purvis
Mr Simon Hamilton
Mr Jim Wells*
Mr David Hilditch

* Mr Mickey Brady replaced Mr Willie Clarke on 1 October 2007
* Mr Ian McCrea replaced Mr Mickey Brady on 21 January 2008
* Mr Jim Wells replaced Mr Ian McCrea on 26 May 2008
** Mr Thomas Burns replaced Mr Patsy McGlone on 4 March 2008
***Mr Paul Maskey replaced Mr John O’Dowd on 20 May 2008

Table of Contents

List of abbreviations used in the Report

Report

Executive Summary
Summary of Recommendations
Introduction
Vessel Modernisation Schemes
Vessel Decommissioning Schemes
The Impact of Grant Assistance

Appendix 1:

Minutes of Proceedings

Appendix 2:

Minutes of Evidence

Appendix 3:

Chairperson’s letter of 20 June 2008 to Dr Malcolm McKibbin, Accounting Officer, Department of Agriculture and Rural Development

Correspondence of 3 July 2008 from Dr Malcolm McKibbin, Accounting Officer, Department of Agriculture and Rural Development

Appendix 4:

List of Witnesses

List of Abbreviations used in the Report

The Department/DARD Department of Agriculture and Rural Development
DFP Department of Finance and Personnel
EU European Union
COS Collective Operations Scheme
MAFF Ministry of Agriculture, Fisheries and Foods (now the Department for Environment, Food and Rural Affairs)
C&AG Comptroller and Auditor General
VCU Vessel Capacity Unit
PPE Post Project Evaluation

Introduction

1. The sea fishing industry is an important economic activity in parts of Northern Ireland and is concentrated at the three ports of Ardglass, Kilkeel and Portavogie. At December 2007, the fishing fleet comprised just over 300 vessels. Overall, the industry provides direct employment for some 1,600 people, both within the fleet itself and in the support sector.

2. Since 1993, the Department of Agriculture and Rural Development (DARD) has provided some £15 million to fund three vessel decommissioning schemes in Northern Ireland, in order to reduce the fleet size and a further £3 million to fund three vessel modernisation schemes. This report focuses on weaknesses in the design, implementation and monitoring of these grant schemes.

3. The Department has recently announced the launch of the new ‘European Fisheries Fund’. The Fund will operate until December 2013 and Northern Ireland’s share is estimated at £29 million, including ‘match funding’ from DARD. Accordingly, this is an opportune time to set out the lessons to be learned from the previous schemes and consider how they should be applied to the forthcoming schemes. These lessons are also useful for other public sector bodies involved in the setting-up and operation of grant schemes.

Overall Conclusions

4. With 100 vessels having been decommissioned from the Northern Ireland sea fishing fleet since 1993, it is clear that the strength of the industry has been heavily eroded over the past 15 years. The Committee recognises that this has largely resulted from external factors, over which the Department had no control. Nevertheless, the Committee’s overall impression is that the Department has not been sufficiently proactive, within those constraints, in developing its vision of how the fleet can best survive as a sustainable, albeit smaller, local industry.

5. It is vital, therefore, that if Northern Ireland is to retain a sustainable sea fishing industry, the Department must ensure that it spends public money wisely. This includes ensuring that assistance is targeted at those areas where it will have greatest impact and that it is properly managed. In the Committee’s view, this will only come about if the Department learns the lessons from its past experiences - proper planning, effective appraisal and close monitoring are all essential elements of effective financial assistance schemes. The Committee is encouraged by the Accounting Officer’s assurances that lessons have been learned and trusts that this will be reflected in the Department’s handling of the forthcoming European Fisheries Fund.

Vessel Modernisation Schemes

6. Prior to spending over £3 million on the 1994-99 modernisation scheme, the Department failed to survey the fleet, to establish its modernisation needs and help prioritise the key areas for targeting assistance. Proper planning and targeting of assistance are crucial elements of an effective grant scheme. In the Committee’s view, it is essential for the forthcoming European Fisheries Fund that the Department carries out a comprehensive survey to ascertain the specific modernisation needs of the fleet.

7. Department of Finance and Personnel (DFP) guidelines require that only the minimum amount of assistance is provided to bring about the benefits of a publicly-funded project. However, in the Department’s modernisation schemes, there was evidence of ‘deadweight’ – that is, assistance over and above the minimum amount necessary for the project to proceed. In the Committee’s view, this issue should have been thoroughly probed by the Department when assessing grant applications. The Committee welcomes the Department’s assurance that, before the European Fisheries Fund scheme is introduced, it will work in conjunction with DFP to examine issues such as a more competitive bidding system, so that differing rates of grants, appropriate to the circumstances, will be offered.

8. There was an underspend of funding in each of the modernisation grant schemes. Given that Northern Ireland has an ageing fleet with substantial modernisation needs, the Committee finds this very disappointing. While it is difficult to predict the level of interest in a new grant scheme, the lower than expected uptake in each scheme and loss of substantial funds to the sea fishing industry, suggests that there is considerable scope for the Department to improve its assessment of need and programme planning.

9. Given the range of shortcomings in the 1994-99 modernisation scheme, the Committee was surprised to learn that the Department had not provided training to its staff on how to use a pro forma assessment system to allocate funding, especially as this was the first such scheme to be directly run by the Department. It was also surprising that the Department had not approached other Departments with more experience in operating grant schemes. The Committee looks to DFP to ensure that good practice in the design and implementation of grant schemes is shared across government.

Vessel Decommissioning Schemes

10. The Department waited until the 1993-98 scheme had ended, to evaluate the results. Given the likelihood of collusion and the trend of significantly increasing bids, year on year, it seems imprudent to the Committee to have let the scheme run unaltered throughout such a long period. The Committee accepts that it is difficult to detect firm evidence of collusion in schemes which involve a bidding process. It is important, therefore, to design and manage schemes in ways which minimise risk. This includes monitoring and analysing the bidding, on a timely basis, in an effort to detect any unusual or unexpected patterns.

11. The Department introduced a ‘strike-price’ mechanism to its 2001 scheme, designed by an external fisheries economist. However, it misinterpreted how the mechanism should operate. Following a Judicial Review, initiated by an unsuccessful applicant to the scheme, the Department had to pay substantial compensation, legal costs and interest charges. The Department’s poor handling of the scheme was not only costly, it was reprehensible – the fact that the fisheries economist’s warning to the Department that it was in error remained dormant, for some three and a half years prior to the Judicial Review, is inexcusable. There are important lessons to be learned from this unfortunate chain of events, which are likely to have an application beyond the decommissioning scheme.

12. Of the 29 applicants awarded decommissioning grant, 22 were paid substantially more than they had sought in their applications. This was because the Department operated the strike price mechanism as a fixed rate of payment, irrespective of the actual value of the applicants’ bids. On average, the bids of the 22 vessel owners were uplifted by over £40,000 each, costing the Department a further £900,000. While the Department said that the applicants had deliberately submitted low bids to ensure that their vessels were selected for grant, the balance of evidence points towards it having paid a higher level of grant than necessary. A better approach might have been to set the strike price as an upper ceiling on the level of grant payable, rather than as a fixed amount to be paid.

13. Contrary to DFP guidelines, post project evaluations were not completed on the 2001 and 2003 decommissioning schemes. It is disappointing that, once again, the Committee has to remind a department of the importance of timely completion of post project evaluations and the dissemination of lessons learned.

The impact of grant assistance

14. While the number of modernisation projects in the 1994-99 scheme was greater than anticipated, the size of projects and the overall extent of modernisation hoped for did not materialise. Around one-third of the budget remained unspent. It seems to the Committee that the Department may have misread the needs of the fleet and that it might have done more to steer the industry towards modernisation, through better targeting of the scheme.

15. The Committee was particularly concerned to learn that, throughout the past 15 years, the Department has not at any stage shaped its thinking on what would be the optimum fleet size and structure for Northern Ireland. It is not clear, therefore, on what basis the Department determined the nature and extent of decommissioning in each of its schemes. The Committee considers that, if the Department is to help secure a sustainable sea fishing industry in Northern Ireland, it must clarify its thinking on this, as a priority.

Summary of Recommendations

Vessel Modernisation Schemes

Recommendation 1

1. Proper planning and targeting of assistance are crucial elements of an effective grant scheme. In the Committee’s view, it is essential for the forthcoming European Fisheries Fund that the Department carries out a comprehensive survey to ascertain the specific modernisation needs of the fleet. This should be carried out at an individual vessel level and completed before the terms of the grant scheme are finalised. The Committee also expects the Department to use the survey results to establish ‘smart’ performance targets for the new scheme, and to serve as a benchmark against which future progress can be measured and reported (see paragraph 11).

Recommendation 2

2. In the Committee’s opinion, assessing the merits of projects through a ‘pro forma’ checklist is a useful approach to project appraisal, for grant schemes like vessel modernisation. However, if the checklist is to be effective, it must encompass all of the scheme objectives and realistically reflect the relative merits of projects, with a particular emphasis on scheme priorities (see paragraph 15).

Recommendation 3

3. The Committee recommends that departments examine the merits of setting ‘minimum points thresholds’ in their scoring of grant applications. Lower scoring applications could be considered for lesser rates of grant support (see paragraph 16).

Recommendation 4

4. In the Committee’s opinion, the issue of crew safety warranted greater priority in the assessment process for the 1994-99 modernisation scheme. The Committee believes that safety considerations must always be accorded a high weighting in the assessment of project applications and expects this to be the case in future modernisation schemes (see paragraph 18).

Recommendation 5

5. It is a long-established principle that the effort expended on project appraisal should be proportionate to the amounts of public funds being offered. The Committee expects this principle to be applied across all sections of the public sector, but would also emphasise that the output in each case must still be fit for purpose (see paragraph 20).

Recommendation 6

6. Departments should be in no doubt that the Committee expects the additionality criterion to be properly applied and DFP guidance adhered to. Additionality is a long-established principle, designed to ensure that the minimum amount of assistance is provided to bring about the benefits of a project. The Committee is clear that additionality should be fully considered and a meaningful assessment made of the minimum funding required. This is especially important where the amount of individual grant involved is substantial (see paragraph 26).

Recommendation 7

7. The Committee recommends that the Department carefully reviews the content of its application forms for the new European Fisheries Fund with a view to avoiding any ambiguity and contradiction in the responses sought. The Department must also ensure that the application forms and its project assessments are wholly consistent with the scheme guidelines (see paragraph 27).

Recommendation 8

8. With the new European Fisheries Fund likely to provide support over several years, the Committee recommends that the Department considers piloting different aspects of the scheme, including grant rates, to test their effectiveness. Interim reviews of the administration and impact of the scheme should also be considered, with a view to making revisions, where appropriate (see paragraph 28).

Recommendation 9

9. The Committee expects every possible effort to be made by DARD (and, indeed, every department) to ensure that all funding allocated to Northern Ireland by the European Union (EU) for the benefit of local industry is fully utilised. The Committee also considers that each department could usefully prepare a contingency plan, to facilitate the swift utilisation of any funding that unexpectedly becomes available at a late stage (see paragraph 31).

Recommendation 10

10. The Committee expects conditions on equipment retention periods and clawback arrangements to be clearly spelled out in letters of offer, in terms that the recipient can readily understand and which fully protect the Department’s position, should enforcement action become necessary (see paragraph 37).

Recommendation 11

11. The Department must make sure that it always applies the appropriate level of resources to run its programmes effectively. While the Committee recognises that resources may be less than the Department would like, it cannot be acceptable to resource a programme at a level which exposes public funds to an unreasonable degree of risk (see paragraph 39).

Recommendation 12

12. Proper planning and design of a grant scheme are crucial to its successful operation and whether value for money is obtained. Departments which have insufficient internal experience must bring in the appropriate knowledge and skills to ensure that new schemes are comprehensively designed and documented. The Committee also considers that staff involved in assessing applications must be given the necessary training to enable them to make sound judgements. This training should be provided prior to commencement of the scheme (see paragraph 42).

Recommendation 13

13. The Committee looks to DFP to ensure that good practice in the design and implementation of grant schemes is shared across government. The Committee welcomes DFP’s undertaking to examine, in particular, how the recent good practice employed by the Department of Social Development, within the community and voluntary sector, can best be disseminated to other departments and agencies (see paragraph 43).

Vessel Decommissioning Schemes

Recommendation 14

14. It is important to design and manage schemes in ways which minimise risk of collusion. This includes monitoring and analysing the bidding, on a timely basis, in an effort to detect any unusual or unexpected patterns in pricing. Where matters of concern are detected, action to counter the threat must be taken at the earliest opportunity (see paragraph 48).

Recommendation 15

15. It is incumbent upon the Department to make sure that the information it uses to structure its schemes and underpin its decision-making is complete, accurate and timely. Failure to do so is unacceptable. The Committee would expect the Department to ensure that the inequities in the 2001 decommissioning scheme, that arose from using out of date data, are not repeated in any future schemes (see paragraph 51).

Recommendation 16

16. Where new legislation is being drafted, the Department must take particular care to ensure that it is clear and unambiguous, fair in its application and that it properly reflects the Department’s intentions. In the Committee’s view, the Department must ensure that when the Department consults with the legislative draftspersons, its team includes any expert advisers who helped design the scheme. The Committee also considers that, where external experts have been engaged to design a new and innovative approach, consideration must be given to retaining them in a quality control role, during the operational phase. This can help ensure that the Department has applied the scheme correctly and that the outcomes are as expected (see paragraph 57).

Recommendation 17

17. The Department’s failure to act on the fisheries economist’s warning that it had wrongly applied the scheme was a costly mistake. The Committee recommends that the Department reviews its internal communication procedures and ensures that all staff are aware of them (see paragraph 58).

Recommendation 18

18. In the Committee’s view, the strike-price mechanism, as applied in the 2001 decommissioning scheme, is unlikely to have achieved best value for money. The Committee recommends that, in future, the Department considers a methodology in which a strike price represents an upper ceiling on the level of grant to be paid, rather than a fixed amount to be paid, irrespective of the value of bids received (see paragraph 63).

Recommendation 19

19. The Committee is disappointed that, once again, it has to remind a Department of the importance which it attaches to the timely completion of post project evaluations. DFP must to maintain a close watch on this issue across the system. As regards the evaluation of the 2003 decommissioning scheme, the Committee expects this to be completed by DARD as a high priority, in preparation for the planning of the European Fisheries Fund (see paragraph 67).

The Impact of Grant Assistance

Recommendation 20

20. The Committee recognises that vessel owners will only undertake modernisation projects where there are good business reasons for doing so. The Committee recommends that the Department must have a key role in working with the industry to identify opportunities for investment, encourage owners to undertake sound projects and identify and overcome barriers to investment (see paragraph 72).

Recommendation 21

21. The Committee considers that, in order to help secure a sustainable sea fishing industry in Northern Ireland, the Department must first determine what it considers to be the optimum size and structure of the fleet. The Committee recommends that this should be done before the European Fisheries Fund schemes are introduced. The Committee recognises that, as circumstances change, the analysis may need to be revised (see paragraph 75).

Recommendation 22

22. The Committee recommends that, in any future decommissioning scheme, the Department looks at how best to target grants at those vessels which make least contribution to the overall strength and sustainability of the fleet, rather than reducing capacity regardless of the vessels involved (see paragraph 79).

Introduction

1. The Public Accounts Committee met on 19 June 2008 to consider the Comptroller and Auditor General’s report on “Sea Fisheries: Vessel Modernisation and Decommissioning Schemes” (HC 1636, Session 2006-07). The witnesses were:

• Dr Malcolm McKibbin, Accounting Officer, Department of Agriculture and Rural Development (DARD);
• Mr Gerry Lavery, Senior Finance Director (DARD);
• Mr Liam McKibben, Director of Fisheries and Rural Policy Division (DARD);
• Mr Kieran Donnelly, Deputy Comptroller and Auditor General; and
• Mr Ciaran Doran, Deputy Treasury Officer of Accounts, Department of Finance and Personnel (DFP).

The Committee wrote to the Accounting Officer on 20 June 2008 with further queries and he replied on 3 July 2008 (Appendix 3).

2. The sea fishing industry is an important economic activity in parts of Northern Ireland and is concentrated at the three ports of Ardglass, Kilkeel and Portavogie. At December 2007, the fishing fleet comprised just over 300 vessels. Overall, the industry provides direct employment for some 1,600 people, both within the fleet itself and in the support sector.

3. Since 1993, the Department of Agriculture and Rural Development has provided some £15 million to fund three vessel decommissioning schemes in Northern Ireland, in order to reduce the fleet size and a further £3 million to fund three vessel modernisation schemes. This report focuses on weaknesses in the design, implementation, monitoring and post-evaluation of these grant schemes.

4. The Department has recently announced the launch of the new ‘European Fisheries Fund’. The Fund will operate until December 2013 and Northern Ireland’s share is estimated at £29 million, including ‘match funding’ from DARD. Accordingly, this is an opportune time to set out the lessons to be learned from the previous schemes and consider how they should be applied to the forthcoming schemes. These lessons are also useful for other public sector bodies involved in the setting-up and operation of grant schemes.

5. In taking evidence, the Committee focused on three key areas. These were:

• vessel modernisation schemes;
• vessel decommissioning schemes; and
• the impact of grant assistance.

Vessel Modernisation Schemes

6. Since 1994, the Department has been responsible for administering three vessel modernisation schemes. The first scheme, which ran from 1994 to 1999, provided grants to improve crew safety and working conditions and the on-board handling and storing of fish, and to install radar equipment. The Department paid just over £3.2 million in respect of 153 applications. Two smaller schemes, with a combined budget of £0.5 million were introduced in 2002 – the ‘Marketing and Quality On Board Fishing Vessels Scheme’ and the ‘Safety Equipment Scheme’. These schemes closed for applications in March 2005. Spend on the 2002 schemes, to the end of March 2008, was some £0.2 million.

Failure to establish the modernisation needs and priorities of the fleet

7. Prior to spending over £3 million on the 1994-99 modernisation scheme, the Department failed to survey the fleet, to establish the specific modernisation needs and help prioritise the key areas for targeting assistance. The Committee asked the Department how it could justify not doing so. The Accounting Officer put forward a number of reasons:

• there had been pressure from industry representatives and local representatives to ensure that the scheme got off the ground quickly - carrying out a survey would have delayed the introduction of the scheme;
• due to previous schemes and ongoing consultation between the Department and the industry, there was a good knowledge base of the state of the fleet at that time;
• the state of the fleet was dynamic, because many vessels were changing hands, a decommissioning scheme was about to start and there were changes in fishing patterns and quotas;
• any needs assessment carried out at the start of the period was unlikely to be valid for the six year duration of the programme;
• the fleet, at an average of 26 years old, was known to be the oldest in the UK.

8. In the Committee’s opinion, none of these justify the Department not carrying out a proper survey of the fleet’s modernisation needs. The desire to provide funding quickly is a poor excuse - the modernisation scheme ran for some six years and there was ample time to build a comprehensive inventory. Similarly, there was ample opportunity to periodically update that inventory, as the state of the fleet changed over time. The claim that that there was a good knowledge base of the fleet is unconvincing – especially if the situation was as dynamic as suggested by the Department. As to the fleet being the oldest in the UK, it strikes the Committee that this would have underpinned the need for a comprehensive survey, rather than being a reason for not doing so. Proper planning and targeting of assistance is fundamental to maximising the impact of limited public funds.

9. In 2002, the Department introduced two smaller modernisation schemes but, once again, failed to conduct a survey to determine the modernisation needs of the fleet. The Department said that, following a consultant’s review, these schemes had been focused on crew safety and the ‘on board’ quality of fish. While the Committee recognises that this was an improvement over the 1994-99 scheme, it is disappointed that, eight years after the Department had started funding modernisation projects, a comprehensive survey of the physical state of the fleet had not yet been conducted.

10. With the impending introduction of a new modernisation scheme under the European Fisheries Fund, the Committee asked for an assurance that any future modernisation scheme will not be undertaken until a full and proper survey of the fleet has been completed. The Department confirmed that such a survey will be carried out before the end of 2008. This is welcome but long overdue.

Recommendation 1
11. Proper planning and targeting of assistance are crucial elements of an effective grant scheme. In the Committee’s view, it is essential for the forthcoming European Fisheries Fund that the Department carries out a comprehensive survey to ascertain the specific modernisation needs of the fleet. This should be carried out at an individual vessel level and completed before the terms of the new grant scheme are finalised. The Committee also expects the Department to use the survey results to establish ‘smart’ performance targets for the new scheme, and to serve as a benchmark against which future progress can be measured and reported.

Weak appraisal procedures

Project assessment could have been more effective

12. There were shortcomings in the project appraisal procedures in the 1994-99 modernisation scheme. While the Department used a ‘pro forma’ checklist to score each grant application, it appeared to the Committee that this had little impact on decisions as to whether, and how much, grant should be awarded - all applicants received grant, irrespective of the level of points scored. Also, grant applications were not always scored in line with the scheme criteria: for example, no consideration was given in the assessment to the specific species or areas being fished by an applicant, despite these being identified in the scheme guidance notes as priority issues for funding.

13. The Department said that the pro forma’s purpose was to rank projects according to their relative importance and that was the way in which grants were awarded. As an example, it said that in the first round of funding, only 35 out of 56 projects were awarded grant. The Committee notes, however, that each of the remaining 21 projects were subsequently awarded grant when more funding became available.

14. In the Committee’s view, the Department could have used the pro forma more effectively to establish the worth of individual projects against scheme guidelines and the relative merit between different projects. This would have helped ensure that assistance was directed to projects offering better value for money. It could also have formed the basis for decisions on the levels and rates of grant to be awarded to individual projects.

Recommendation 2
15. In the Committee’s opinion, assessing the merits of projects through a ‘pro forma’ checklist is a useful approach to project appraisal, for grant schemes like vessel modernisation. However, if the checklist is to be effective, it must encompass all of the scheme objectives and realistically reflect the relative merits of projects, with a particular emphasis on scheme priorities.

Recommendation 3
16. The Committee recommends that departments examine the merits of setting ‘minimum points thresholds’ in their scoring of grant applications. Lower scoring applications could be considered for lesser rates of grant support.

Crew safety

17. Under the 1994-99 modernisation scheme, only 20 points out of a possible 155 on the pro forma could be allocated for improving crew safety. In the Committee’s view, this was disproportionately low, given that sea fishing is recognised as being among the most dangerous jobs. The Accounting Officer told the Committee that the pro forma question on the level of experience of a vessel’s skipper, which could score between 1 and 10 points, also had a link to safety. However, he conceded that, if the Department were to undertake the scheme again, it would improve the consideration and thought given to the relative scoring and weight of individual questions on the pro forma. The Committee welcomes this assurance.

Recommendation 4
18. In the Committee’s opinion, the issue of crew safety warranted greater priority in the assessment process for the 1994-99 modernisation scheme. The Committee believes that safety considerations must always be accorded a high weighting in the assessment of project applications and expects this to be the case in future modernisation schemes.

The cost of project appraisal under the 2002 modernisation schemes was disproportionate

19. The C&AG reported that the Department had carried out economic appraisals on each of the projects funded under the 2002 schemes. However, the grants involved averaged only £8,600 under one scheme and £1,240 on the other. DFP guidelines indicate that an appraisal should cost between 2% and 5% of the value of the project being appraised - for a grant of £1,240, this would be between £24 and £60. As the Department’s economic appraisals will have cost substantially more than that, this was like ‘using a sledgehammer to crack a nut’. The Department accepted that its appraisal effort was disproportionate to the size of projects, but explained that, in other grant schemes now being operated, appraisals for grants up to £150,000 are carried out using a standardised pro forma. The degree of detail in the pro forma will vary, according to the level of expenditure involved.

Recommendation 5
20. It is a long-established principle that the effort expended on project appraisal should be proportionate to the amounts of public funds being offered. The Committee expects this principle to be applied across all sections of the public sector, but would also emphasise that the output in each case must still be fit for purpose.

There were indications that more than the minimum amounts of grant necessary were paid out

21. DFP guidelines require that only the minimum amount of assistance is provided to bring about the benefits of a publicly-funded project. However, in the 1994-99 modernisation scheme, there was evidence of ‘deadweight’ – that is, assistance over and above the minimum amount necessary for the project to proceed. Even though one-third (53) of applicants clearly stated that they were prepared to proceed with the project without public funding and, in addition, around half of all applicants (86 cases) indicated that they would proceed with a cheaper option if their application was unsuccessful, the Department still offered the maximum 50% grant rate to all applicants. Subsequently, consultants engaged to carry out an evaluation of the scheme reported that “there is no evidence to suggest the type of vessel modernisation would not occur without the scheme.” This would suggest that there had been waste of a substantial level of public funds.

22. The Department said that grant had been set at the 50% level because it wanted to encourage people to apply to the scheme and the maximum rate had been applied, across the board, to ensure equality of approach and parity of treatment. It pointed to some 28 applicants who had been offered assistance but had not proceeded with their project as evidence that the rate had been set at around the right level. It also said that, although the scheme guidelines included the wording “up to 50%”, this had been directed at the construction of new vessels which had been a legitimate category when the scheme was introduced – it had always been the Department’s intention to provide modernisation grants of 50% across the board.

23. The Committee does not find these explanations very convincing. Applying the same rate of grant to all applications suggests that the Department did not give sufficient consideration as to how financial assistance could be targeted at the most worthwhile projects. Moreover, it stands in stark contrast to the DFP guidelines (paragraph 21 above) which require the minimum amount necessary to be paid. If it had always been the Department’s intention to award modernisation grant at 50% across the board, this should have been made clear in the scheme guidelines. As to the numbers of applicants offered assistance who did not proceed, the Committee fails to see how this was, in any way, an indication that a 50% standard rate of grant was appropriate.

24. The Department also commented that there had been inconsistencies in the scheme application forms of those applicants who had stated that they would proceed without grant. It said that each applicant had also signed a declaration, which included a statement that their project would not proceed without grant. When asked why the applicants’ responses were ignored, the Accounting Officer said that it was particularly difficult to get to the bottom of the issue when a large number of applicants is involved. This seems a weak explanation - 181 applications over a period of six years is not unmanageable, especially if the type of information required is clearly defined in advance. In the Committee’s view, it was remiss of the Department not to query what it has conceded were glaring inconsistencies in the scheme applications. The issue of deadweight should have been thoroughly probed by the Department and, in the Committee’s opinion, there can be no satisfactory explanation for failing to do so.

25. In the Committee’s opinion, the Department’s approach to the issue of deadweight in each of its modernisation schemes was weak and ineffective and failed to deliver best value for money. The Committee notes that the Accounting Officer conceded that there had been deadweight in the schemes and accepted that additionality should have been properly probed at the time. The Committee welcomes his assurance that, before the European Fisheries Fund scheme is introduced, the Department will work in conjunction with DFP to examine issues such as a more competitive bidding system, so that differing rates of grants, appropriate to circumstance, will be offered.

Recommendation 6
26. Departments should be in no doubt that the Committee expects the additionality criterion to be properly applied and DFP guidance adhered to. Additionality is a long-established principle, designed to ensure that the minimum amount of assistance is provided to bring about the benefits of a project. The Committee is clear that additionality should be fully considered and a meaningful assessment made of the minimum funding required. This is especially important where the amount of individual grant involved is substantial.

Recommendation 7
27. The Committee recommends that the Department carefully reviews the content of its application forms for the new European Fisheries Fund with a view to avoiding any ambiguity and contradiction in the responses sought. The Department must also ensure that the application forms and its project assessments are wholly consistent with the scheme guidelines.

Recommendation 8
28. With the new European Fisheries Fund likely to provide support over several years, the Committee recommends that the Department considers piloting different aspects of the scheme, including grant rates, to test their effectiveness. Interim reviews of the administration and impact of the scheme should also be considered, with a view to making revisions, where appropriate.

The lower than anticipated uptake of modernisation grants resulted in a loss of EU funding

29. There was an underspend of funding in each of the 1994-99 and 2002 modernisation grant schemes. The Committee asked whether the local sea fishing industry had lost out as result of unspent funding. The Accounting Officer explained that, in 1994-99, £1 million worth of grants were not taken up but the Department had been able to reallocate some £330,000 of the shortfall. Given that Northern Ireland has an ageing fleet with substantial modernisation needs, the Committee finds this very disappointing. In the 2002 schemes, while only £194,000 out of a budget of £500,000 had been spent, the Department said that all of the shortfall had been reallocated and it envisages all funding being drawn down when the current EU programme ends later this year.

30. While the Committee accepts that it is difficult to predict the level of interest in a new grant scheme, the lower than expected uptake in each of the 1994-99 and 2002 schemes and loss of substantial funds to the sea fishing industry, suggests that there is considerable scope for the Department to improve its assessment of need and programme planning.

Recommendation 9
31. The Committee expects every possible effort to be made by DARD (and, indeed, every department) to ensure that all funding allocated to Northern Ireland by the EU for the benefit of local industry is fully utilised. The Committee also considers that each department could usefully prepare a contingency plan, to facilitate the swift utilisation of any funding that unexpectedly becomes available at a late stage.

32. When the Accounting Officer was commenting on the uptake of the 2002 modernisation schemes, he also explained that the ‘Safety Equipment Scheme’ had, in effect, been combined with a safety-related ‘Collective Operations Scheme’ (COS). This was done in order to increase the funding available for safety initiatives, following a number of local tragedies at sea. The Accounting Officer said that, under the COS, which was operated through the two Producer Organisations, a total of some 1,500 safety training certificates had been issued and 15 vessels had been awarded a quality mark. The Committee commends the Department and the Producer Organisations for bringing forward this initiative.

The inadequacy of the Department’s project monitoring procedures

33. It is clear that there were flaws in the Department’s letters of offer under the 1994-99 scheme. They did not include certain basic conditions, such as a requirement to retain grant-aided equipment for a minimum period of time and clawback arrangements for any cases where the vessel or the equipment was later sold on. These were well-established procedures within the public sector, even in the mid-1990s.

34. The Accounting Officer conceded that it would have been better if the conditions had been in the Department’s letters of offer. However, he considered that not doing so did not in any way diminish the responsibilities of applicants, insofar as they had to sign a declaration that they would abide by the conditions in the EU regulations.

35. The Committee is not persuaded by this argument. The letter of offer is a key document in any grant scheme and one which effectively represents the contract between the funding department and the project promoter. As such, it should always conform to best practice. Because of the inadequacies, there was a clear risk that, had publicly-funded equipment not been retained by grant recipients, the Department may have found itself in a weakened position had it tried to enforce clawback.

36. The Accounting Officer said that the Department had since moved on significantly and now includes conditions on equipment retention and clawback in its letters of offer. He also said that the Department had held a series of workshops for staff in capital grant schemes on what should be included in letters of offer. The Committee welcomes these improvements.

Recommendation 10
37. The Committee expects conditions on equipment retention periods and clawback arrangements to be clearly spelled out in letters of offer, in terms that the recipient can readily understand and which fully protect the Department’s position, should enforcement action become necessary.

Failure to carry out physical inspections of grant-aided equipment

38. The shortcomings in the Department’s letters of offer under the 1994-99 scheme were compounded by its failure to carry out any verification visits to confirm that grant-aided equipment had been installed and retained. Moreover, it failed to do so even after it was alerted to the risks involved by the Audit Office. The Accounting Officer accepted that it was regrettable and unfortunate that resources were not available to conduct checks on grant-funded vessels and conceded that it was most certainly not good practice. He said that the Department’s practice now is to carry out verification visits both during and at the end of the equipment retention period.

Recommendation 11
39. The Department must make sure that it always applies the appropriate level of resources to run its programmes effectively. While the Committee recognises that resources may be less than the Department would like, it cannot be acceptable to resource a programme at a level which exposes public funds to an unreasonable degree of risk.

Lack of staff training

40. Given the range of shortcomings in the 1994-99 modernisation scheme, the Committee asked the Department whether its staff had been adequately trained in using a pro forma assessment system to allocate funding. It said that no particular training had been given. The Committee found this surprising, especially as this was the first such scheme to be directly operated by the Department.

41. The Committee was also surprised that the Department had not approached other departments with more experience in operating grant schemes. The Deputy Treasury Officer of Accounts confirmed that DFP has consistently shared Public Accounts Committee reports on grant schemes with all departments. However, he added that it is not necessarily standard procedure for best practice to be shared across the public sector. In the Committee’s view, this is very disappointing and is a weakness that needs to be addressed.

Recommendation 12
42. Proper planning and design of a grant scheme are crucial to its successful operation and whether value for money is obtained. Departments which have insufficient internal experience must bring in the appropriate knowledge and skills to ensure that new schemes are comprehensively designed and documented. The Committee also considers that staff involved in assessing applications must be given the necessary training to enable them to make sound judgements. This training should be provided prior to commencement of the scheme.

Recommendation 13
43. The Committee looks to DFP to ensure that good practice in the design and implementation of grant schemes is shared across government. The Committee welcomes DFP’s undertaking to examine, in particular, how the recent good practice employed by the Department of Social Development, within the community and voluntary sector, can best be disseminated to other departments and agencies.

Vessel Decommissioning Schemes

44. Since 1993, some £15 million assistance has been paid to Northern Ireland vessel owners, through a series of three decommissioning schemes. The first scheme, which ran from 1993 to 1998, was UK-wide. The other two, in 2001 and 2003, were regional schemes, administered solely within Northern Ireland. Overall, some 100 local fishing vessels have been decommissioned.

Concerns were expressed about possible collusion in bidding on the 1993-98 decommissioning scheme

45. An evaluation at the end of the 1993-98 scheme, by Departmental consultants, noted that there was an inherent risk that, as the scheme progressed, there would be an increase in collusion when applicants sought to determine their bid. The Department explained that the consultants had described this collusion as fishermen acquiring knowledge of previously successful bids, rather than colluding on their next bids for the scheme. It also said that no evidence of collusion had been found, adding that, being a UK-wide scheme, there were protections - it was not that easy for local fishermen to know what was happening in Scotland or the south coast of England.

46. The Committee noted, however, that consultants employed by the former Ministry of Agriculture, Fisheries and Foods (MAFF) also had concerns about collusion. They reported on the progressive increase in value, year on year, of successful UK decommissioning bids and noted that the level of those bids was significantly in excess of the EU average. They concluded that bids had been increasingly subject to collusion. The Department suggested that the increase in UK bids could have been due to the increased profitability in the fishing sector over the period 1993 to 1996. However, this does not explain why the UK bids were significantly higher than the EU average.

47. It is not clear why the Department waited for six years, until the scheme had ended, to evaluate the results. To the Committee, it seems imprudent to have let the scheme run unaltered throughout such a long period, given the likelihood of collusion and the trend of significantly increasing bids, year on year. Moreover, it is superficial, in the Committee’s view, simply to say that there is no actual evidence of collusion, especially in light of the consultants’ reports. It will always be difficult to prove collusion in a scheme like this. As to the Department’s view that there were little or no dealings between local fishermen and their English and Scottish counterparts, this is wholly unconvincing. It is in the nature of the fishing industry that substantial contacts will have been developed across the UK.

Recommendation 14
48. It is important to design and manage schemes in ways which minimise risk of collusion. This includes monitoring and analysing the bidding, on a timely basis, in an effort to detect any unusual or unexpected patterns in pricing. Where matters of concern are detected, action to counter the threat must be taken at the earliest opportunity.

The 2001 Decommissioning Scheme

Use of inaccurate data to target the 2001 Scheme

49. The C&AG’s report noted that targeting of the 2001 decommissioning scheme was based on data of fish catches that were between 5 and 8 years old and that, as a result, it was open to inequity. Vessels could be wrongly classified as not being in the white fish category, with the result that the amount of grant offered would be substantially lower. The Department told the Committee that an exercise carried out by their external fisheries economist found that ‘only’ six vessels fell into this category. In its view, regardless of the method chosen, there will be winners and losers and, in this case, the impact was relatively minor. The Committee strongly disagrees. There should be no ‘winners and losers’, only vessels properly and accurately categorised, according to the intention of the scheme. While the Department may consider that the impact was minor at an aggregate level, this is of no consolation whatsoever to the six vessels wrongly classified.

50. The Committee notes the Accounting Officer’s assurance that subsequently, in the 2003 decommissioning scheme, the inequity was not repeated.

Recommendation 15
51. It is incumbent upon the Department to make sure that the information it uses to structure its schemes and underpin its decision-making is complete, accurate and timely. Failure to do so is unacceptable. The Committee would expect the Department to ensure that the inequities in the 2001 decommissioning scheme, that arose from using out of date data, are not repeated in any future schemes.

The new ‘strike price’ mechanism was wrongly applied

52. In response to the concerns about collusion in the 1993-98 scheme, the Department introduced a ‘strike-price’ mechanism to its 2001 scheme, designed by an external fisheries economist. However, the Department misinterpreted how the mechanism should operate. Three applicants who were refused grant should have been eligible. Following a series of unsuccessful appeals, one successfully applied for a Judicial Review, which found in his favour. The Department had to pay compensation of £153,000 to two vessel owners, together with legal costs and interest charges of a further £88,000. In addition, £281,000 was paid to four owners who, under the proper interpretation of the scheme, would not have been eligible for decommissioning grant.

53. The Committee asked how the Department’s misinterpretation of the strike price mechanism had not been discovered during the various appeal stages. The Accounting Officer explained that, following the fisheries economist’s advice on how to design and operate the scheme, new legislation was drafted for the scheme. The Department’s legal advice, throughout the appeals process, was that its interpretation of the legislation was correct. It was the Judicial Review which took the opposite view.

54. The Committee noted, however, that in December 2001, before the series of appeals and the Judicial Review, the fisheries economist told the Department that it had wrongly applied the strike price mechanism. Astonishingly, however, there is no evidence of the Department having taken any action on foot of this letter and the Accounting Officer was unable to explain why not. Consequently, the letter was not drawn to the attention of the Department’s legal advisers, nor was it given to any of the appeal panels.

55. It appears to the Committee that there were three crucial communication breakdowns which contributed to the Department’s flawed application of the strike price mechanism. First, when the scheme legislation was being drawn up, there was no contact between the legislative draftspersons and the Department’s fisheries economist. The result was a lack of clarity in the legislation. Had there been close liaison, it is likely that the new legislation would have properly reflected the scheme, as designed by the fisheries expert. Second, after the Department had assessed the applicants’ bids and decided on the offers of grant to be made, it did not re-engage the fisheries expert to quality review the results, before issuing the offers. And finally, in December 2001, when the fisheries expert drew the Department’s attention to its error, his warning went unheeded.

56. The Department’s poor handling of the scheme was costly. It was also reprehensible – the fact that the fisheries economist’s warning that the Department was in error remained dormant, for some three and a half years prior to the Judicial Review, is inexcusable. There are important lessons to be learned from this unfortunate chain of events, which are likely to have an application beyond the decommissioning scheme.

Recommendation 16
57. Where new legislation is being drafted, the Department must take particular care to ensure that it is clear and unambiguous, fair in its application and that it properly reflects the Department’s intentions. In the Committee’s view, the Department must ensure that when the it consults with the legislative draftspersons, its team includes any expert advisers who helped design the scheme. The Committee also considers that, where external experts have been engaged to design a new and innovative approach, consideration must be given to retaining them in a quality control role, during the operational phase. This can help ensure that the Department has applied the scheme correctly and that the outcomes are as expected.

Recommendation 17
58. The Department’s failure to act on the fisheries economist’s warning that it had wrongly applied the scheme was a costly mistake. The Committee recommends that the Department reviews its internal communication procedures and ensures that all staff are aware of them.

The Department paid many applicants more than they bid for

59. Of the 29 applicants awarded decommissioning grant, 22 were paid substantially more than they had sought in their applications. This was because the Department operated the strike price mechanism as a fixed rate of payment, irrespective of the actual value of the applicants’ bids. On average, the bids of the 22 vessel owners were uplifted by over £40,000 each, costing the Department a further £900,000.

60. The Accounting Officer said that the applicants had deliberately submitted low bids to ensure that they were put onto the scheme. He gave two examples to illustrate this – one bid was at £2.33 per VCU (Vessel Capacity Unit) and the other £3.84 per VCU. This compared to the strike price in that class of £779 per VCU. The Committee finds this far from convincing. It seems much more likely that these extraordinarily low bids resulted from a misunderstanding of the bidding process on the part of the two applicants. Also, if applicants were as tactically aware as has been suggested, it seems odd that there were a significant number of bids above strike price. Moreover, it occurs to the Committee that it would not have been in the interests of applicants to bid especially low, as this would risk overly deflating the strike price. In light of this, the Committee does not accept that there is clear evidence that vessel owners submitted artificially low bids.

61. As a further measure of the value for money of the scheme, the Committee enquired as to the cost per tonne decommissioned in Northern Ireland, compared with Great Britain. Figures provided by the Department showed that the cost locally, at £2,287 per tonne, was higher than both Scotland (£2,033) and England and Wales (£1,793). The Department also provided comparative costs based on price per VCU which showed that the Northern Ireland average, at £684 per VCU, was lower than Scotland at £834, but above the England and Wales figure of £658. It added that VCUs are recognised to be a more accurate assessment of fishing capacity than tonnage on its own. While this might be the case, the Committee notes that the Department’s 2001 performance measures included targets for tonnage, as well as VCU, reductions.

62. The Committee acknowledges and welcomes the efforts made to counter the type of collusion apparent in the 1993-98 scheme. However, it looks to the Committee that there was significant scope to achieve better value for money in the 2001 scheme. While noting the Department’s comments, the Committee considers that the balance of evidence points to the Department having paid a higher level of grant than necessary, to achieve its intended outcome. A better approach might have been to set the strike price as an upper ceiling on the level of grant to be paid, rather than as a fixed amount to be paid, irrespective of the value of bids.

Recommendation 18
63. In the Committee’s view, the strike-price mechanism, as applied in the 2001 decommissioning scheme, is unlikely to have achieved best value for money. The Committee recommends that, in future, the Department considers a methodology in which a strike price represents an upper ceiling on the level of grant to be paid, rather than a fixed amount to be paid, irrespective of the value of bids received.

Post project evaluations were not completed on the 2001 and 2003 decommissioning schemes

64. Contrary to DFP guidelines, the 2003 decommissioning scheme was introduced before a post project evaluation (PPE) was completed on the 2001 scheme. The Accounting Officer accepted that the evaluation should have been completed on a timely basis but assured the Committee that evaluations are now being completed in accordance with the rules. The Committee was surprised to learn, therefore, that the PPE on the 2003 decommissioning scheme had still not been completed, more than four years after completion of the scheme and some three years after the issue was raised by the Audit Office. The Accounting Officer accepted that the 2003 evaluation should have been carried out by now but said that a PPE would not normally be done until the scheme had ended and sufficient time had passed for its success to be established. He said that he wanted to have the evaluation completed in time to inform the new European Fisheries Fund scheme later this year.

65. The Committee notes the Department’s comments but sees matters differently. The 2003 scheme was completed and the outcome was clear a number of years ago. In the Committee’s opinion, there is no excuse for failing to follow the DFP guidelines. Also, the issue of timing is not simply about completing the evaluation at any point prior to a follow-up scheme being introduced. It is important to carry out the evaluation while the completed scheme remains fresh in the minds of those who administered it and while they are still in post. Moreover, the lessons to be learned may be generic and have a wider application across the Department. In cases where the outcomes of the scheme remain unclear for an extended period of time, then an interim evaluation can be carried out on the other aspects.

66. The Deputy Treasury Officer of Accounts acknowledged that DFP had wrongly given approval to the 2003 decommissioning scheme without having received the 2001 PPE. He also said, however, that following the Committee’s report in 2007 on the Belfast to Bangor Railway Line project, DFP had written directly to Accounting Officers to remind them of the requirements in relation to PPEs.

Recommendation 19
67. The Committee is disappointed that, once again, it has to remind a Department of the importance which it attaches to the timely completion of post project evaluations. DFP must maintain a close watch on this issue across the system. As regards the evaluation of the 2003 decommissioning scheme, the Committee expects this to be completed by DARD as a high priority, in preparation for the planning of the European Fisheries Fund.

The Impact of Grant Assistance

Vessel modernisation

68. Although assistance under the 1994-99 scheme was largely aimed at improving crew safety, working conditions and maintaining the on-board quality of fish, consultants concluded that the grant was seen by many applicants as a means of updating ageing components on vessels. The Department commented that at least half of the awards made were associated with safety equipment.

69. The Committee noted that, while the number of modernisation projects in the 1994-99 scheme was greater than anticipated, the size of projects and the overall extent of modernisation hoped for did not materialise. Around one-third of the budget remained unspent. The Accounting Officer said that while 94% of the funding was awarded, not all of it had been taken up by vessel owners. Also, Northern Ireland had performed better than Great Britain, in terms both of uptake and percentage of the budget spent. He considered that, given the substantial costs of projects, relative to profits, it was not surprising that they were smaller in scale.

70. The Committee recognises the substantial sums that fishermen had to contribute and acknowledges that this may have impacted on the scale of projects. However, this should have been apparent when the Department planned the scheme. Also, the scheme ran over a period during which the Department said there was increased profitability in the sector (see paragraph 46).

71. It seems to the Committee that the Department may have misread the needs of the fleet and that it might have done more to steer the industry, through better targeting of the scheme. Not all projects will be particularly large, nor do they need to be. It is more about encouraging all vessel owners who intend to remain in the industry, to make the necessary investment that is appropriate to their circumstances. In the Committee’s view, the evidence reinforces its views on the need to survey the modernisation requirements of the fleet (see paragraph 11).

Recommendation 20
72. The Committee recognises that vessel owners will only undertake modernisation projects where there are good business reasons for doing so. The Committee recommends that the Department must have a key role in working with the industry to identify opportunities for investment, encourage owners to undertake sound projects and identify and overcome barriers to investment.

Vessel decommissioning

73. In each of the three decommissioning schemes, the Department generally failed to achieve its performance targets, in terms of the level of decommissioning secured and the relative cost. This is disappointing. The Committee was particularly concerned to learn that, throughout the past 15 years, the Department has not at any stage shaped its thinking on what would be the optimum fleet size and structure for Northern Ireland. It is not clear to the Committee, therefore, on what basis the Department determined the nature and extent of decommissioning in each of its schemes. While the Department has said that it aims to secure a sustainable sea fishing industry, the Committee wonders how it can achieve this aim when it does not have a concept of the size and structure of the industry it wants to sustain.

74. The Department said that there are many factors that can impact on the fisheries sector and so it is particularly difficult to determine an optimum fleet size. The Accounting Officer referred to a ‘fleet futures survey’ carried out for the Department by a consultant in 1994. This included an analysis, under different scenarios, of what the size of the fleet might be in 2013. He said that the Department proposed to update the analysis and that it would try to have it available before the European Fisheries Fund is introduced.

Recommendation 21
75. The Committee considers that, in order to help secure a sustainable sea fishing industry in Northern Ireland, the Department must first determine what it considers to be the optimum size and structure of the fleet. The Committee recommends that this should be done before the European Fisheries Fund schemes are introduced. The Committee recognises that, as circumstances change, the analysis may need to be revised.

Vessels which had previously received modernisation grants were decommissioned

76. Another area of concern to the Committee centred on vessels that received modernisation grants and were later decommissioned. The Department was unable to tell the Committee how many of the Northern Ireland vessels decommissioned between 1993 and 1998 had previously been given modernisation grants. However, it said that 10 vessels (out of 51) decommissioned under the 2001 and 2003 schemes had previously received modernisation funding. The Committee notes that this is a significant proportion. Even though an element of the funding had been clawed back, there is still a degree of waste, not least because the purpose of providing public funds is to help maintain a vibrant and self-sustaining fishing industry. It is undesirable, therefore, that vessels which have been modernised should decommission within a relatively short period thereafter.

77. The Committee recognises that, with changing circumstances in the sea fishing industry, it is difficult – both for the Department and for vessel owners - to predict future trends with absolute certainty. Nevertheless, the perception remains that this issue could be managed more effectively. In the Committee’s view, this is an example of how better strategic planning on the future size and structure of the Northern Ireland fleet might help to prevent or reduce this type of waste.

Decommissioning grants have not been targeted

78. The Committee noted that the Department’s decommissioning schemes did not target specific vessels, such as the older and more inefficient boats, within the fleet. The Department said that, while such vessels were not specifically targeted, it was more likely that these types of boats would apply for decommissioning. As a result, the remainder of the fleet will be more productive, more profitable and probably safer. The Committee notes the Department’s comments but would be more reassured if it was supported by hard evidence.

Recommendation 22
79. The Committee recommends that, in any future decommissioning scheme, the Department looks at how best to target grants at those vessels which make least contribution to the overall strength and sustainability of the fleet, rather than reducing capacity regardless of the vessels involved.

Overall conclusions

80. With 100 vessels having been decommissioned from the Northern Ireland sea fishing fleet since 1993, it is clear that the strength of the industry has been heavily eroded over the past 15 years. The Committee recognises that this has largely resulted from external factors, over which the Department had no control. Nevertheless, the Committee’s overall impression is that the Department has not been sufficiently proactive, within those constraints, in developing its vision of how the fleet can best survive as a sustainable, albeit smaller, local industry.

81. It is vitally important, therefore, that if Northern Ireland is to retain a sustainable sea fishing industry, the Department must ensure that it spends its money wisely. This includes ensuring that assistance is targeted at those areas where it will have greatest impact and that it is properly managed. In the Committee’s view, this will only come about if the Department learns the lessons from its past experiences - proper planning, effective appraisal and close monitoring are all essential elements of effective financial assistance schemes. The Committee is encouraged by the Accounting Officer’s assurances that lessons have been learned and trusts that this will be reflected in the Department’s handling of the forthcoming European Fisheries Fund.

Minutes of Proceedings
Relating to the Report

Thursday, 19 June 2008
Senate Chamber, Parliament Buildings

Present: Mr Paul Maskey (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Jonathan Craig
Mr John Dallat
Mr Simon Hamilton
Mr David Hilditch
Mr Trevor Lunn
Mr Mitchel McLaughlin
Mr Jim Wells

In Attendance: Mr Jim Beatty (Assembly Clerk)
Mrs Gillian Lewis (Assistant Assembly Clerk)
Mrs Nicola Shepherd (Clerical Supervisor)
Mr Darren Weir (Clerical Supervisor)

Apologies: Mr Thomas Burns
Ms Dawn Purvis

The meeting opened at 2.03pm in public session.

2. The Chairperson welcomed Mr Kieran Donnelly, Deputy Comptroller and Auditor General (C&AG) and Mr Ciaran Doran, Deputy Treasury Officer of Accounts (TOA) to the meeting.

3. Evidence on the NIAO Report ‘Sea Fisheries: Vessel Modernisation and Decommissioning Schemes’.

The Committee took oral evidence on the NIAO report ‘Sea Fisheries: Vessel Modernisation and Decommissioning Schemes’ from Dr Malcolm McKibbin, Accounting Officer, Department of Agriculture and Rural Development (DARD), Mr Gerry Lavery, Senior Finance Director, DARD, and Mr Liam McKibben, Director of Fisheries and Rural Policy Division, DARD.

The witnesses answered a number of questions put by the Committee.

Members requested that the witnesses should provide additional information to the Clerk on some issues raised as a result of the evidence session.

4.07pm The evidence session finished and the witnesses left the meeting.

[EXTRACT]

Thursday, 11 September 2008
Room 144, Parliament Buildings

Present: Mr Paul Maskey (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Jonathan Craig
Mr John Dallat
Mr Simon Hamilton
Mr David Hilditch
Mr Trevor Lunn
Mr Mitchel McLaughlin
Ms Dawn Purvis
Mr Jim Wells

In Attendance: Mr Jim Beatty (Assembly Clerk)
Mrs Gillian Lewis (Assistant Assembly Clerk)
Mr John Lunny (Clerical Supervisor)
Mr Darren Weir (Clerical Officer)

Apologies: Mr Thomas Burns

The meeting opened at 2.01pm in public session.

2.02pm Mr McLaughlin joined the meeting.
2.05pm Ms Purvis joined the meeting.
2.07pm Mr Wells joined the meeting.
2.08pm Mr Craig joined the meeting.
2.25pm Mr Hamilton joined the meeting.
2.38pm The meeting went into closed session.

6. Consideration of the Committee’s Draft Report on Sea Fisheries: Vessel Modernisation and Decommissioning Schemes.

Members considered the draft report paragraph by paragraph.

The Committee considered the main body of the report.

Paragraphs 1 – 30 read and agreed.
Paragraph 31 read, amended and agreed.
Paragraphs 32 – 44 read and agreed.

3.14pm Mr Hilditch left the meeting.

Paragraphs 45 – 47 read and agreed.
Paragraph 48 read, amended and agreed.
Paragraphs 49 and 50 read and agreed.
Paragraph 51 read, amended and agreed.

3.30pm Mr Hilditch rejoined the meeting.

Paragraph 52 read and agreed.

3.31pm Ms Purvis left the meeting.

Paragraphs 53 – 55 read and agreed.
Paragraphs 56 and 57 read, amended and agreed.
Paragraphs 58 – 67 read and agreed.

3.46pm Mr Hamilton left the meeting.

Paragraphs 68 – 71 read and agreed.

3.48pm Mr Wells left the meeting.

Paragraph 72 read, amended and agreed.
Paragraphs 73 – 79 read and agreed.

3.50pm Mr Hamilton rejoined the meeting.

Paragraphs 80 and 81 read and agreed.

The Committee considered the Executive Summary.

Paragraphs 1 – 9 read and agreed.
Paragraph 10 read, amended and agreed.
Paragraphs 11 – 15 read and agreed.

Agreed: Members ordered the report to be printed.

Agreed: Members agreed that the Chairperson’s letter requesting further information to the Accounting Officer, Department of Agriculture and Rural Development, and the Accounting Officer’s response would be included in the Committee’s report.

Agreed: Members agreed to embargo the report until 00.01am on Thursday, 9 October 2008, when the report would be officially released.

Agreed: Members agreed not to hold a press conference on Thursday, 9 October 2008 to launch the Committee’s report.

[EXTRACT]

Appendix 2

Minutes of Evidence

19 June 2008

Members present for all or part of the proceedings:
Mr Paul Maskey (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Jonathan Craig
Mr John Dallat
Mr Simon Hamilton
Mr David Hilditch
Mr Trevor Lunn
Mr Mitchel McLaughlin
Mr Jim Wells

Witnesses:

Mr Gerry Lavery Mr Liam McKibben Dr Malcolm McKibbin

Department of Agriculture and Rural Development

Also in attendance:

Mr Kieran Donnelly

Deputy Comptroller and Auditor General

Mr Ciaran Doran

Deputy Treasury Office of Accounts

1. The Chairperson (Mr P Maskey): Today, we will discuss the Comptroller and Auditor General’s report ‘Sea Fisheries: Vessel Modernisation and Decommissioning Schemes’, which was published in October 2006. Members have been given a revised information pack, which I will refer to during the meeting. That pack also attempts to explain some of the terms that are used in the report. At the previous meeting, Mitchel McLaughlin expressed concern about some of the terminology that is used.

2. We are joined by Dr Malcolm McKibbin, accounting officer for the Department of Agriculture and Rural Development (DARD), Mr Gerry Lavery, DARD’s senior finance director, and Mr Liam McKibben, DARD’s director of fisheries and rural policy. You are very welcome to today’s meeting. We will begin with some questions.

3. The Comptroller and Auditor General’s report highlights a range of concerns about the 1994-99 vessel modernisation scheme. Although the scheme ran for six years, its shortcomings were not addressed during that time. What lessons have you learned from the period that the scheme was in existence and from what happened after it ended?

4. Dr Malcolm McKibbin (Department of Agriculture and Rural Development): At the outset, I will set the context. The Committee will be aware that the report refers to modernisation and decommissioning schemes from the early 1990s. Over the past 15 years or so, the Department has improved several of the schemes’ elements that were criticised by the Northern Ireland Audit Office and, indeed, those that we were concerned about. Those improvements are recognised and acknowledged in many places in the Audit Office report.

5. We will no doubt discuss today the Committee’s criticism of the Department’s approach to fisheries. However, I assure the Committee that the Department takes the matter seriously. We have examined our range of capital-grant activities, including fisheries, and attempted to improve them all. We have tried to do that by improving our corporate governance arrangements. I will outline briefly those arrangements, because it is a theme that will emerge during the meeting.

6. Our departmental board reviews the strategic risks and links them to the departmental objectives scorecard. The board includes two independent directors who provide constructive criticism and help us to carry out our duties. The Department has a risk-review group and a corporate governance and audit committee. The latter is chaired by a non-executive director, and it provides comprehensive information on reliability and integrity, and gives assurances to me, as accounting officer. The committee operates to HM Treasury standards, complying with 23 of the 26 relevant principles, and it will comply with the other three by the end of the year. We also have a counter-fraud forum, a risk-management forum and a paying agency accreditation committee.

7. Our internal audit function complies with Government standards, and it is now more actively involved in helping us to improve our processes, procedures, and management controls. The Department tries to use it more proactively; for example, we are just starting a rural development programme that has new delivery arrangements that include many capital grants. Internal audit was brought in from the very beginning to quality assure those processes before they went live. The Department also reviewed other grants processes and prepared a lessons-learned paper that has been given to all the senior managers who are involved in the administration and management of those types of grant schemes.

8. The stewardship of reporting by senior managers has also improved. They must assure me, as accounting officer, that they are working on tasks such as proportionate post-project evaluations, economic appraisals and business cases, and ensuring that the Department complies with Government Accounting Northern Ireland (GANI). I hope that the Committee is assured that those corporate governance arrangements demonstrate that the Department is trying to learn lessons, not just in this one sector, but across the full range of departmental activities.

9. To answer your question, the lessons that the Department is learning from the modernisation scheme and the decommissioning scheme are quite similar. Many of the issues arise in both schemes, and we appreciate that proportionate economic appraisals must be carried out and business cases prepared. Issues such as additionality and deadweight must also be considered, as must the requirement for minimum-quality thresholds whenever someone applies for a grant. In addition to increased outcome- and impact-orientated performance measures, the Department requires a satisfactory knowledge of the needs and objectives of any scheme.

10. Furthermore, the Department has to give clear guidance on the scheme and its conditions to potential applicants. It must also ensure that procedures are in place to minimise the risk of collusion occurring. Clearly, the Department must use up-to-date and relevant information and prioritisation criteria that everyone understands. Aside from that, proper project-monitoring and inspection procedures must be in place, and, when work on those has been completed, timely post-project evaluations must be carried out.

11. That is the gist of the main messages and lessons that must be learned as a result of the Audit Office’s report.

12. The Chairperson: Thank you, Malcolm. Paragraph 2.14 of the report states that one third of the applicants during the period of the 1994-99 modernisation scheme declared that they would proceed without any Government assistance. However, £666,000 was paid out to those people. Was that not a waste of public funds?

13. Dr M McKibbin: I will address that particular problem by discussing the complex issues of additionality and deadweight, which are obviously important in ensuring that we get the maximum benefit from an investment of public money.

14. With respect to the modernisation scheme, the grant level could have been set at up to 60%. However, the Department set it 10% lower, at up to 50%. That was similar to the expectation of the industry and in line with previous industry experience of grants. That level was applied across the board to ensure equality of approach and parity of treatment. Indeed, that approach had been approved by Baroness Denton, who was the Minister at the time.

15. One of the main aims of the grant scheme was to set the grant at a level that encouraged people to apply for it. The Department chose 50%, and it needed to know whether that was the correct level. In other words, at the aggregate level, was the grant level correct to minimise deadweight and to ensure that we had proper additionality?

16. The scheme had a budget of £5 million, which was reduced to £4·4 million in the mid-term review. Offers of £4·122 million worth of grants were agreed. Therefore, 94% of the budget was used or offered to participants, thus indicating a good measure of the attractiveness of the scheme and whether the grant level was correct.

17. Grants worth £3·1 million were taken up by applicants, and, importantly, 28 applicants decided that they could not work with that level of grant. Therefore, £1·014 million of grants was not drawn down. In essence, if we are asking whether the grant was at about the right level, the answer is that it was.

18. We also have to consider why fishermen did not take up the grant. It is difficult to say whether the grant was set at too low a level, because at that time, a 1994 economic assessment indicated that average profits in the industry were between £11,000 and £21,000. The average amount that was available for the scheme was £40,000, with a £20,000 grant. At that time, £20,000 would have been a lot of money for fishermen to have to find. That is an important factor when considering whether the grants were set at the correct level.

19. You said that one third of the applicants indicated that they would have proceeded with their projects without grant assistance. Every grant applicant signed a declaration in the application form stating that their projects would not proceed without the grant.

20. Perhaps you were referring to deadweight, which is a crucial factor. The application form implies that applicants may have proceeded with a lower level of grant and perhaps with lower-quality projects or smaller-scale projects. However, the bottom line is that they each signed a declaration that stated that their projects would not proceed if they did not receive the grant. That is a crucial factor when considering additionality.

21. The Chairperson: Are you saying that the report was wrong to say that one third of the applicants would have proceeded without a grant? That being the case, was it not a waste of public funds?

22. Dr M McKibbin: I do not believe that the report is wrong. That issue arose from what is described in case study A of the report, which I investigated in some detail. That application concerned a 67·5 ton Portavogie-based trawler and was submitted on 11 October 1996. That vessel primarily fished for white fish and nephrops in the Irish Sea. That application was for deck-related safety equipment that was necessary to obtain a safety certificate. It included items such as a new winch, a crane, a power-block head and a net drum.

23. The application cited in case study A was actually for £77,240. The Sea Fish Industry Authority (SFIA) considered that and reduced what it believed the correct value of the application to be to £54,000. Therefore, a value-for-money assessment kicked in immediately. The figure of £27,000 in case study A is half the £54,000 that was required for the scheme. I assume that it is with reference to case study A that you have asked me whether I think that the Audit Office report is correct. I believe that it is in as far as it goes.

24. The Audit Office report says that the applicant said that if the application were unsuccessful, he would undertake the project at his own expense. That is correct, because on the application form he would have ticked a box that asked that very question. Therefore, the Audit Office report is factually correct. However, the second part of that question on the form also asks about proceeding with the project, and the applicant that case study A refers to stated that a cheaper project would be undertaken if his application were unsuccessful. In other words, he ticked two boxes.

25. The application form includes a declaration that states that a project would not be carried out but for the grant. In that case, the level of deadweight is not £27,000. I agree with the Audit Office that there is confusion about the amount of additionality. I believe that the Audit Office is correct in saying that we should probe that issue further. If you are asking me whether, in that case, I believe that the level of deadweight was £27,000 — and, by extrapolation, we are talking about a figure of £758,000 — the answer is that I do not. That is the extreme edge of the calculation, and the correct figure is somewhere within that. It is difficult to remove and calculate the deadweight of any large scheme.

26. The Chairperson: We may need to investigate that further.

27. Turning to the decommissioning schemes, it is clear from paragraph 3.29 that the Department misinterpreted how the strike-price mechanism would operate in its 2001 decommissioning scheme. Obviously, that has proved to have been an expensive mistake for the public purse. Following the judicial review, compensation of £153,000 had to be paid to two vessel owners, as well as £88,000 in legal costs. In addition, £280,000 was paid wrongly to four applicants. How do you explain the Department’s getting that so wrong?

28. Dr M McKibbin: The main issue that is associated with that is how the Department ranked the bids. Paragraph 3.21 of the report sets out how the ranking criteria were used. The issue is about what was meant by section 1 and section 5 of that paragraph. Section 1 of paragraph 3.21 says that part of the Department’s methodology was to:

“establish a bid price per VCU, by dividing the bid by the respective VCU”.

29. The bid was seen to be the bid price for the vessel divided by the vessel capacity unit (VCU).

30. Section 5 of paragraph 3.21 says:

“in relation to each such class, approve each application for grant aid…by starting with the lowest bid price”.

31. The Department interpreted that as the bid for the vessel, as opposed to the bid divided by the VCU. That created a dilemma when an appeal was made against the ranking order. A series of appeals were made to the head of fisheries at the Department, to a senior civil servant outside fisheries, and to an independent panel. Advice on the legislation was obtained from our Departmental Solicitor’s Office. They all found in favour of the Department’s interpretation. The matter went to a judicial review, which found that the Department’s interpretation of the criteria had discriminated against a class of vessel. That is how the Department got to that point, and we accepted the decision of the judicial review.

32. You are correct to say that, as a consequence, £88,000 was paid out in legal costs and interest. A further £135,000 was paid out to decommission a boat, but at least decommissioning was carried out for that money. An amount of £17,800 was paid out to an applicant who subsequently sold a boat. That amount was the difference between the sale of the boat and the decommissioning grant that he would have received had his original application been successful, so little was achieved. A third applicant had decommissioned under the next scheme, but that cost more than the previous scheme.

33. As a consequence of the way in which the Department handled the issue, six applicants received grants for which they would not have been entitled. Of those six applicants, one did not take up the offer of assistance. Another was lost at sea in a tragic incident. The remaining vessels were decommissioned at a cost of £281,000. If one assumes that those vessels would have been decommissioned in the following scheme, the public purse was saved more than £70,000, given that the earlier decommissioning scheme was less expensive than the latter one. The Department had not sought that as an intentional benefit, but, by getting that decision wrong, the costs were offset to a certain degree by the unintended benefit that we were fortunate enough to accrue.

34. The Chairperson: That was a fluke. Do you agree that the Department misinterpreted those valuations?

35. Dr M McKibbin: I accept that there was misinterpretation; that was found by the judicial review. I understand the reason that the Department interpreted it initially as it did, but you are correct: the judicial review found against us. We have implemented all its recommendations and decisions, and you are correct to say that it has cost the public purse money. We went through proper procedures to try to ensure that our interpretation was right, we sought legal advice, and we went through an appeals process. However, the courts found ultimately that we were wrong, and I accept that we were wrong.

36. The Chairperson: I will bring in other members to ask questions. Each member will have around 10 minutes to ask their questions.

37. Mr Dallat: I have sat through the introduction and explanation, and so far they have been classic examples of damage limitation. I hope that, as we continue, we will get down to the nitty-gritty, because the Department knows fine well that the fishing industry is in crisis. How could such elementary mistakes have been made, and how could people have been denied grants? I realise that the role of the Committee is to defend the public purse. Some people received grants who should not have, and it is unforgivable that others who were entitled to grants did not receive them. That is a serious matter. I am not saying that this particular Department is unique in promising to do better in the future, but the focus must be on what happened.

38. Paragraph 2.5 of the report states that, prior to spending over £3 million on the 1994-99 modernisation scheme, the Department of Agriculture and Rural Development did not survey the fleet to establish and prioritise the key areas to which financial assistance would be targeted. Accepting that the Department made all those blunders, how in the name of goodness could anyone justify that failure?

39. Dr M McKibbin: To put things into context, when the modernisation scheme was active, there was pressure from industry representatives and local politicians to ensure that it got off the ground quickly so that fishermen could take advantage of the grants in order to modernise the fleet. I am not using that as an excuse for not carrying out a modernisation survey, but it is an important contextual point. Carrying out a survey would obviously delay the introduction of any such scheme. The benefits of carrying out such a survey must outweigh the delay. I imagine that that thinking would have been reasonable at the time; however, I am speculating, because that happened 15 years ago.

40. Due to the concentrated nature of the industry along the County Down coast and the close contact that existed between the Department and the industry through our previous grant-operated schemes and ongoing consultation, there was a good knowledge base of the state of the fleet and the modernisation needs at that time. It was also widely accepted that the fleet was, at 26 years old on average, the oldest in the UK. The producer organisations did not call for a survey of modernisation needs, and such a survey was not carried out in England or Wales.

41. At that time, the fleet was dynamic, because many of the vessels were changing hands due to purchase and sale, a decommissioning scheme was about to start, there were changes in fishing patterns, and there were annual changes in quotas.

42. There were concerns that if a needs assessment were carried out at the beginning of the period, it would be unlikely to be valid for the six-year duration of the programme, particularly when there was a good awareness of the state of the industry. The question is whether that was a problem. What you are implying is that not carrying out a survey meant that the scheme was not properly targeted.

43. PricewaterhouseCoopers carried out a mid-term review in February 1997. That concluded that the scheme had been effective in ensuring that the targets were met, and were done so at a lower cost than was envisaged originally. It also pointed out the value of the scheme to the ageing Northern Ireland fleet.

44. The question remains as to whether the Department is improving and learning. The answer is that it is. Before the 2002 scheme, a Nautilus Review was carried out on the catching sector. A series of recommendations emerged from that review, including specifically targeting the safety of the crew on board a vessel and product quality. In paragraph 2.27 of the report, the NIAO acknowledges that that improvement and targeting of resources is an appropriate way ahead.

45. Finally, in this stepped improvement that we are trying to effect, the Minister announced on 28 April that a modernisation needs survey would be carried out prior to the introduction of the next programme, which is the European Fisheries Fund (EFF) programme. That will be completed before the end of 2008.

46. Although I accept that the targeting of the needs survey that had been carried out could have been more specific and produced greater benefits, the consultants said that benefits were achieved. The Department said that there were lessons to be learned, and that has been proven both in 2002 and more recently.

47. I hope that that shows that there has been a chain of improvement over a long period.

48. Mr Dallat: I have listened carefully to your comments. However, I have not changed my mind. A captain would never take his ship out of port unless all his charts were in place. Otherwise, the ship would end up rudderless and drifting all over the high seas. That is what eventually happened with the scheme. I do not accept, therefore, that the vessel-modernisation scheme should not have been carried out.

49. Do you agree that a survey would have helped to ensure that grants were targeted at priority areas? Ultimately, Government’s function is to protect people who are in greatest need. That is why there is democracy.

50. Dr M McKibbin: As I have said, consultants were employed in 2002 to help us to target grants specifically. We targeted crew safety and product quality. Indeed, in paragraph 2.27, the Audit Office commends the Department for improving the way in which it targets grants and for having learnt the lessons that — as you have said, Mr Dallat — it should have learnt from the 1994-99 scheme.

51. Mr Dallat: Do you accept that some form of baseline data would have helped you to judge the progress that was made and the effectiveness of the scheme?

52. Dr M McKibbin: You raise a good point. The objectives that were set in the 1990s were somewhat subjective and hard to measure. Looking back at the 1990s, I question whether specific objective setting and science on performance measures were as prevalent at that time. It was not nearly as much of a focused industry as it has now become. Therefore, if you ask whether objectives and performance measures could have been better at that time, the answer is yes, they could have been. That would have allowed us to assess the schemes better.

53. Mr Dallat: Although you may have already done so, can you give an assurance that any future modernisation schemes will not be undertaken until a full and proper survey has been completed?

54. Dr M McKibbin: Absolutely. As I have said, the Minister announced such a survey on 28 April. It is scheduled to be completed in 2008.

55. Mr Dallat: Finally, on the 1994-99 modernisation scheme, paragraph 2.6 notes that staff used a pro forma assessment sheet to score and record their assessment of each grant application, yet all applicants received offers of grant irrespective of the level of points scored. What was the pro forma’s purpose? Was it simply window dressing?

56. Dr M McKibbin: No. The pro forma’s purpose was to rank projects according to their relative importance. Indeed, that was the way in which grants were awarded in each successive round of applications. Those with the highest scores were awarded grants first. Paragraph 2.6 states that, in the first round, 35 out of 56 applications were awarded grants. That also happened in successive rounds — 14 applications that were made during the last round, for example, did not get a sufficient score and were not awarded a grant. Therefore, the pro forma was used to prioritise applications.

57. Mr Dallat: It is amazing how the Department got it so horribly wrong. How it unravelled may come to light as we proceed. I have no more questions for the moment.

58. Mr Craig: I want to continue to discuss paragraph 2.6. The way in which the modernisation scheme was carried out between 1994 and 1999 is quite interesting. You have explained the criteria and points systems that were used. Only 10 points out of a possible 155 could be allocated for improving crew safety. With hindsight, was that a bit irresponsible, given that crew safety should have been the top priority when modernising ships? I take it that the Department did not want there to be ever-more efficient fishing vessels, given that fish stocks seem to be running out. I would have thought, therefore, that it was more important to highlight crews’ safety.

59. Dr M McKibbin: I will deal with those points separately, taking the latter one first. It is difficult to discuss efficiency. You said that more efficient vessels can have a greater fishing effort. At the same time, the Department wants the fishing industry to be efficient, competitive and, therefore, sustainable. If vessels are not efficient, they will not be able to generate a profitable and worthwhile income for their crews. In that sense, there is a slight issue over efficiency.

60. A maximum score of 10 points is awarded for a skipper’s fishing experience, which relates to safety, as do two other questions. Question 2 asks whether the work will improve crew safety or working conditions, and question 10 asks whether the project is to obtain a Marine Safety Agency (MSA) certificate. The assessment pro forma, therefore, contains two safety-related questions and one skipper-experience question.

61. You make a valid point. If we were to undertake that scheme again, we would improve the consideration and thought given to the relative scoring and weight of the individual questions. I assure you that that will be done before any future scheme is introduced.

62. Mr Craig: I welcome that — crew safety should be top of the list. Fishing is recognised as one of the most dangerous jobs in the world, and we are all aware of those sad occasions on which fishermen have lost their lives.

63. As Mr Dallat said about paragraph 2.6, although a ranking system that everybody used — rightly or wrongly — was created, you now say that that system was used merely to compile a list. What I take from reading that paragraph is that the whole points system was completely ignored.

64. Were staff adequately trained in using that system to allocate funding? Was part of the problem a lack of training?

65. Dr M McKibbin: I shall bring in Mr Lavery at this point.

66. Mr Gerry Lavery (Department of Agriculture and Rural Development): You make a very good point. That scheme was the first to be operated directly by the Department. For the first time, the European Commission devolved responsibility to the Department, so, to an extent, of course the staff were grappling with an entirely new responsibility. They were devising an approach to try to rank the various applications; to come up with an objective way in which to decide between one application and another; and to devise a format that was transparent to the industry and defensible to the applicant.

67. I am aware of no particular training being given for that exercise. However, that would be an absolutely standard way in which to approach operating a grant scheme: weighting different elements of an application; scoring them on a common basis; producing a matrix; producing a score; and awarding a grant. That approach would be part and parcel of how administrators are expected to make judgements on what are often quite amorphous issues.

68. Mr Craig: That leads on to an obvious question: when you did not have that in-house expertise, did you approach other Departments that perhaps had a great deal more experience in operating those often complicated grant schemes?

69. Mr Lavery: At the time, experience was drawn on from outside the then Department of Agriculture for Northern Ireland. Officials were aware of the approach that was taken on national schemes that the Sea Fish Industry Authority operated. The Department could also draw on the way in which the European Commission had previously operated grant schemes in the 1980s — it had all that information on which to draw. Therefore, the method that was used to address the pro forma’s 13 criteria — most of which dealt not with safety but with matters such as hygiene quality on vessels — reflects a real effort to grapple with issues that are difficult to weight and to compare with another.

70. Mr Craig: That is a scary thought, when one considers the mess with which we ended up.

71. I have a question for Mr Doran. What is the normal departmental set-up for sharing technical information with the public sector?

72. Mr Ciaran Doran (Deputy Treasury Officer of Accounts): Across all types of grant schemes, it is not necessarily standard practice for best practice to be shared. The Department of Finance and Personnel plays a central role. The Public Accounts Committee has examined several Northern Ireland Audit Office reports that highlight best practice on sharing information on setting up and running grant schemes. We share that information across the system consistently.

73. In the past couple of years, there have been funding developments for the community and voluntary sector. The Department for Social Development, by its nature, has taken a lead role in looking at grants to the community and voluntary sector, and that has involved all Departments. We could possibly look at that area and build on it for the future.

74. Mr Hamilton: The vessel-modernisation scheme is mentioned at paragraph 2.12. You have already referred to DFP guidelines in answer to a question from the Chairperson. Your response was that DFP guidelines require only the minimum amount of assistance to be provided to bring about the benefit of a scheme. Paragraph 2.12 states that just over 80% of applicants who received grant assistance through the modernisation scheme would have proceeded with that project with no funding, or with less funding. Nevertheless, applicants received the maximum 50% grant in all cases. Why does it appear that responses from applicants were ignored, and why does it appear that DFP guidelines on deadweight were not stringently applied?

75. Dr M McKibbin: As you say, we have already touched on that matter. The figures stated in paragraph 2.12 are what the Audit Office found when going through the application forms. However, to add to that evidence base, Nautilus’s review of the catching sector appreciated the point that the Audit Office was making. The Audit Office was saying that the additionality and deadweight issue needed to be probed further, because it is complex and hard to fathom. It is particularly difficult to get to the bottom of the issue when a large number of applicants is involved. However, if there are a couple of applicants, the additionality and deadweight issue can be researched. For instance, there were 181 applications for the scheme at paragraph 2.12. No one would suggest that we look at the bank accounts of 181 applicants to see whether they had been successful when fishing the previous year and whether they could afford to use their own savings to proceed with the scheme.

76. Nautilus went out to a stratified sample of 60 fishermen and asked what they would do in various circumstances. It came up with slightly different figures, and found that only 10% of the applicants would continue with the proposed scheme with no grant. That would imply a relatively low level of deadweight, compared with a large number saying that they would have continued with the scheme.

77. The Department approached the issue at the aggregate level. It was setting the modernisation grant at 50%, because it felt that that would attract a reasonable number of applicants and would encourage them to carry out some much needed investment in a very old and ageing fleet.

78. Therefore, the grant was set at broadly the correct level. Deadweight is an issue, but on the basis of the evidence that I have, I cannot work out its extent. With due respect, I doubt that the Audit Office can come to an accurate conclusion either, but I accept its premise that the issue should be probed further.

79. However, it was not unreasonable for the Department to offer grants of up to 50%. The wording “up to” was added not because we considered awarding grants of 20%, 30% or 40% to individual applicants, but because the construction of new vessels was a legitimate category when the scheme was introduced. The Department could not award a 50% grant for the construction of a vessel that could be worth millions of pounds, because that would have taken up the entire budget. The Department had intended to provide modernisation grants of 50% across the board, and that was a defensible position at the time.

80. Mr Hamilton: I appreciate that we are not dealing in hard facts and figures for deadweight, but, in paragraph 2.11, the consultants who evaluated the 1994-99 scheme reported:

“there was a low level of additionality”.

81. They went on to state:

“there is no evidence to suggest the type of vessel modernisation funded would not occur without the scheme.”

82. Bearing in mind that additionality cannot be quantified, as you acknowledged, that comment raises a concern that public money may have been wasted. Can you ensure the Committee that additionality will be more stringently probed in the Department’s future modernisation schemes before grants are awarded?

83. Dr M McKibbin: I give that assurance, but it is difficult when dealing with a capital-grants scheme. A solution may be found through a more competitive bidding system for modernisation grants, and we will have to consider that. However, we will examine the issue with our economics branch, internal audit and DFP in view of suggesting possible solutions. I doubt that anyone will ever be able to appear before this Committee and guarantee it that no deadweight will be associated with a capital-grants scheme, particularly when there is a large number of applications. However, I assure you that we will do our best.

84. Mr Hamilton: On the difficulty and unreliability of such a system, paragraph 2.15 states:

“The Department told us that it is difficult to assess the reliability of applicants’ statements as to whether projects could have proceeded with no or less grant funding.”

85. It continues with an interesting remark:

“It said that the dialogue between staff and individual skippers revealed a desire on the part of applicants to give the answer deemed most likely to secure grant.”

86. In some ways, I should not be surprised at such a comment, but it is, nonetheless, extraordinary. What kind of probing resulted in that conclusion?

87. Dr M McKibbin: There is a great deal of contact among our staff, the producer organisations and the fishermen. The application form may highlight the problem best. Let us take another look at case study A, which was highlighted earlier, in which the applicant stated in one part of the form that the scheme would be carried out regardless of the awarding of a grant and signs another part of the form to confirm that the scheme would not be carried out without a grant.

88. I am going back to the early 1990s, and I hope that you will allow me a little latitude in what is pure speculation. Put yourselves in the mind of a fisherman who is applying for a grant at that time. If he understands the Government’s rules on additionality, he is a good man to begin with. However, given his understanding, would he really submit an application that states his intent to carry out the scheme regardless of whether the grant is awarded. If he understands the rules of additionality, he thinks that that would rule him out straight away. Why, therefore, would he say that?

89. Secondly, further on in the form, he signs to agree to a totally contradictory statement. That highlights the point that not everyone, and certainly not many applicants, understands additionality. The Department must ensure that an education exercise on that is implemented. When contrary pieces of evidence exist, it is difficult to work out where the truth lies.

90. Mr Hamilton: Looking back, did the Department consider piloting the scheme by offering a lower level of grant, or will it consider that for future schemes? I understand that the fisherman wants the biggest catch, so to speak, that he can get. I know that the modernisation scheme ran for five years, so was any consideration given to assessing that scheme after, for example, one year, with a view to making changes to the scheme as it ran on, or will that be taken into consideration in future?

91. Dr M McKibbin: Interestingly, the grant level for the first 2002 modernisation scheme that the Department for Environment, Food and Rural Affairs carried out was originally set at 20%, but that scheme did not attract a sufficient number of applicants. In fact, that scheme got very few applicants, so the Department had to increase the grant rate to 40%, which, incidentally, is the same rate that we offered in the second scheme. Therefore, the scheme did not attract enough interest initially, and the Department then had to raise the bar.

92. You are right to say that we must keep the schemes under review, because the programme runs for six years, which is a long time. If the scheme is to be dealt with in successive rounds, that will allow us the latitude to review it. We must put in more upfront thinking about how to avoid some of the problems that we have encountered, and we will try and do that before the European Fisheries Fund — the next fisheries scheme — comes into operation, but I will certainly bear your comments in mind.

93. Mr Hilditch: From reading paragraphs 2.20 and 2.21, it is fairly clear that there were flaws in the Department’s letters of offer, in that they did not include some basic conditions, such as retaining grant-aided equipment for a minimum period, clawback arrangements, and so on. Those are well-established procedures and practices, so why were they not put in place at the outset?

94. Dr M McKibbin: It may not have been common practice in the early 1990s. It would have been better to ensure absolutely that the claimants were aware of their obligations by including the scheme requirements in the letters of offer. However, although that was not done, it is important to note that not including the scheme requirements in the letters did not diminish the applicants’ responsibilities in any way. That is because the letter-of-offer declaration that was signed by all applicants who wished to take up the offer of grant support stated:

“I, or we, accept the conditions for payment of aid set under the FIFG regulation EC208093 and the Fisheries and Aquaculture Structures Regulations NI 1995.”

95. That means that the applicants had to do what the conditions in the notes for guidance said that they had to do.

96. You asked why the Department did not comply with good practice at that time, but it is important to note that, in their mid-term evaluation, PricewaterhouseCoopers recorded specifically that the letters of offer did conform to good-practice standards. However, Mr Hilditch is correct to say that that would not be considered good practice now. The Department has moved on significantly and, in order to conform to best practice, it now includes those conditions. Indeed, we have included such conditions for all schemes subsequent to the mid-1990s scheme. To give the Committee two examples of the letters of offer being strengthened, paragraph 17 of the letter of offer for the 2003 scheme states:

“You must ensure that any equipment for which grant aid is paid remains in place, is kept in good repair, and is used for the grant-aided purposes for at least six years.”

97. Paragraph 18 goes on to say:

“The vessel which is the subject of grant aid may not give up fishing, except in the case of force majeure, for a period of at least six years from the date on which the project is completed, otherwise the Department may require, in full or in part, of the grant already paid.”

98. We have moved on to conform to best practice. We also provided advice to our staff by holding a series of workshops for those involved in capital-grant schemes on what should be included in letters of offer. As Mr Hilditch suggested, that would represent best practice, and that has been done. Therefore, we believe that we have moved on a great deal.

99. The difficulty is that we are using the schemes from the 1990s as our baseline, and as both the Audit Office and I have said, a lot of water has gone under the bridge since that time, and improvements have been made. We are not perfect, but we have improved a great deal since the mid-1990s, and Mr Hilditch’s point illustrated that.

100. Mr Hilditch: Did the Department seek professional or legal advice when devising the conditions in the letters of offer?

101. Dr M McKibbin: Do you want to know whether we sought legal advice on the conditions or on what should be included in the letters of offer?

102. Mr Hilditch: The conditions contained in the letters of offer.

103. Dr M McKibbin: Legal or professional advice on what conditions to include would have been taken when the scheme was being designed.

104. Mr Hilditch: Would they have been professional advisers?

105. Dr M McKibbin: Guidance would certainly have come from professional advisers, and the system has been significantly tightened up since then.

106. Mr Hilditch: Do you accept that there was a risk that publicly funded equipment could have been sold on by grant recipients and that the Department could have done nothing about it?

107. Dr M McKibbin: I have difficulty in accepting that. The applicant had to adhere to the conditions, irrespective of whether they were contained in the letter of offer.

108. The slightly different issue that you raise is whether it may have been possible for applicants not to retain their equipment. That is a different risk, on which action cannot be taken. It is, however, a particular risk that is overcome because applicants had to comply with the conditions and the notes for guidance. I agree that to include it would have been better practice.

109. Mr Hilditch: Even after being alerted by the Audit Office to the risk involved, the Department did not carry out any verification visits to confirm the retention of grant-aided equipment. Why not? How did the Department assure itself that grants were spent as intended, and that grant-aided equipment was retained as required?

110. Dr M McKibbin: It is regrettable and unfortunate that resources were not available to conduct checks on grant-funded vessels at the end of the retention period in the mid-1990s scheme. That is most certainly not good practice.

111. However, we have since recognised the need to ensure that vessels that have been modernised retain equipment long enough. That is the other risk to which you referred earlier. Since that period we carry out article 4 checks on every modernised vessel, to ensure that the correct equipment has been installed.

112. We now go further than other areas in the United Kingdom by checking at the end of the retention period, because an article 4 check can be conducted during the retention period, not necessarily at the end. We now include an additional check at the end of the retention period to ensure that the equipment has been kept. Those new checks have led to two cases in which funds have been clawed back because the equipment was not retained for the appropriate length of time.

113. I hope that that provides some assurance that the problems manifested in the mid-1990s schemes are no longer relevant.

114. Mr Lunn: My questions relate to paragraph 2.26 of the report. Dr McKibbin, you told us in your opening remarks, and frequently since, that many lessons have been learnt. I do not think that you mean that they were learned entirely as a result of the Audit Office report. I presume that you have learnt lessons along the way.

115. When the 2002 scheme was launched, given that you had the experience of a scheme that had started eight years earlier, and had finished three years previously, you again failed to conduct a survey to determine the fishing fleet’s modernisation needs. As I said, that was eight years after the start of the previous scheme. I accept that you have already answered this question in some way, but did you not consider at that stage that a survey would be needed to produce a clear picture of the problems you were trying to resolve?

116. Dr M McKibbin: I will not rehearse the previous arguments around the local knowledge of the fleet, but I will reiterate that the Nautilus Review of the catching sector specifically looked at what the next scheme should focus on and target.

117. It specifically focused on crew and vessel safety and on product quality — the quality of the fish that were being landed. That provided such a focus for the 2002 scheme that 30 applicants accepted offers for the 2002 scheme, but 28 other applicants who applied were rejected for failing to satisfy the scheme’s specific objectives.

118. Members will notice that in paragraph 2.27 of its report, the Audit Office acknowledges that there has been an improvement in tightening the targeting of modernisation grants. We learned the lesson, and although no specific survey of modernisation needs was carried out, we were informed by the experience of those who were involved in the previous scheme and the specific work that Nautilus Consultants did on target aims. I believe that we have made progress since the mid-1990s.

119. Mr Lunn: Paragraph 2.26 of the Audit Office report also tells us that the Department carried out economic appraisals of the projects that were funded under the 2002 modernisation schemes. However, the grants that were involved were for relatively small amounts: one was for an average of £8,600, and the other was for an average of £1,240. Are you satisfied that the effort that went into those appraisals of such relatively small projects was worthwhile? Was it proportionate?

120. Dr M McKibbin: That is a good point. I do not think that the effort was proportionate at that time. We must ask whether we have moved on and learned that lesson. For schemes that have a value of between zero and £20,000, there is now a simple five-page pro forma to fill out. For schemes that are valued at between £20,000 and £150,000, there is a 16-page pro forma. It is a lot easier now to complete the standardised pro formas. Mr Lunn has a point in that a disproportionate amount of effort was expended at that time, but we have moved forward, and we now try to conduct proportionate appraisals.

121. Mr Lunn: I do not know the cost of an appraisal; I have no idea about that. However, the DFP guidelines indicate that it should be about 2% — or up to 5% — of the value of the grant. Therefore, for a grant of £1,240, the appraisal should cost between £24 and £60. I am not too sure what kind of appraisal could be obtained for that. However, you have made the point that it was probably like using a sledgehammer to crack a nut.

122. Dr M McKibbin: The effort was not proportionate, but there is now a five-page pro forma for schemes such as that, which requires boxes to be ticked. It is definitely more proportionate than it was previously.

123. Mr Lunn: You said that of the applicants who were awarded funding under the 2002 scheme, 28 were rejected. That is fair enough. However, those who were accepted were all given the maximum 40% grant. Evidently, the lesson was not learned at that time about providing only the minimum necessary to ensure that the project went ahead.

124. Dr M McKibbin: We are back into this additionality deadweight argument again. In defence of the 40% grant, we decided that it would apply across the board. Was the 40% figure right? The best example that I can give is that which I gave earlier. The grant rate in England and Wales was set at 20% and had to be increased to 40%. I believe that we were in and around the right area. I cannot say that, hand on heart, we were exactly right, but I do not think that anyone can ever say that. It was 10% lower than the grant scheme that was used in the mid-1990s. Therefore, there had been a move in order to ensure that we were pitched at the right level.

125. Mr Lunn: I still find it surprising that, if an appraisal of all those applications were conducted, it would find that none deserved only 30% rather than the maximum 40%. They all got 40% grants.

126. Dr M McKibbin: Yes. As I said, the policy decision was made by Baroness Denton in the mid-1990s to extend the grant equally to all applicants, and we did so again during the previous Administration. I am unsure as to what factors you think would kick in to change the level of grant that we would give, other than examining an individual applicant’s ability to pay. That is not a prudent way to go when one is dealing with hundreds of applicants. If there were only one or two applicants, it would be easier to negotiate a grant rate that ensured a minimum of dead weight. In this case, however, we are saying that before the next scheme, we will examine issues such as a more competitive bidding system so that people can be offered different rates of grants. We will do that in conjunction with DFP, and we will try to move forward. I reiterate that this is a difficult area.

127. Mr Lunn: I know that it is a difficult area, particularly given that you were dealing with an industry that was struggling and that continues to struggle. However — and you may treat this as either a comment or a question — from reading the report, I cannot help but think that a sympathetic approach was taken. Presumably, European money was available, and perhaps departmental officials decided, not necessarily to break the rules, but to take a fairly relaxed approach to applications in order to get money to the fishermen. Perhaps they were not too pernickety about what that money was used for. One could conclude that applicants’ interests were put before taxpayers’ interests.

128. Dr M McKibbin: Since I have been in this job, the fishing industry has never accused me of being too lenient. [Laughter.] We regard European money as public money, and there is no difference in how the Department deals with money from either Europe or the Northern Ireland block. The same rigours that are applied to national money should be — and I believe are — applied to European money.

129. Mr Lunn: I accept that you are now applying the appropriate rigours, as you put it, but do you accept that such rigours were not applied in former days?

130. Dr M McKibbin: I am not sure which area you are referring to, and I am not aware of any individual, or group of individuals, in the Department who took a lax attitude towards handing out public money. Although I am speculating about what happened at that time, I believe that they believed that they had set appropriate grant levels. If one considers the uptake of vessel modernisation grants — and, no doubt, we will address decommissioning grants shortly — the scheme was rarely oversubscribed.

131. You mentioned affordability and the state of the industry, but, let us remember that, at that time, according to a 1994 economic review, the average earnings from a boat was between £11,567 and £21,149 a year. Furthermore, if a fisherman applied for a £40,000 grant, he had to put up £20,000. If one is attempting to attract applicants, a reasonably attractive grant rate must be offered, and I believe that that package was in the right ballpark. Nevertheless, I cannot — and do not — believe that anyone could guarantee that there would be no deadweight.

132. Mr McLaughlin: With regard to paragraphs 2.25 and 2.26 of the report, I note that, by the time that the Audit Office had completed its review, of a budget of £500,000, only £106,000 had been offered. What was the final outcome from those schemes, that is, how much money was offered and paid?

133. Dr M McKibbin: The most recent figures for moneys paid through the 2002 vessel modernisation scheme indicate that up to 31 March 2008, £14,882 was spent on safety equipment and £179,055 was spent on safety training. I should explain that a safety-related collective-operations scheme formed part of the fisheries programme. That scheme has, in effect, been combined with the 2002 scheme in order to increase the amount of money that is available for, and to accelerate the number of, safety initiatives. Consequently, the benefits that have accrued from the relatively small amount of money that was involved in the 2002 scheme are a little blurred. If you wish, I can outline some of the outcomes from the money that was invested in that scheme.

134. The 2002 scheme comprised only two elements: safety and quality. With regard to safety, the scheme was targeted at helping 14 vessels. However, because we combined that scheme with what is called a collective-operation scheme, which provided additional money, 324 vessels were assisted. Thus, the target was to assist 14 vessels, but 324 were assisted because another scheme came into play. We very much wanted to accelerate the rates of safety improvements because some tragedies had occurred in the fishing industry. The point was made earlier that fishing is an exceptionally dangerous profession, and we were trying to assist people in carrying out those safety improvements.

135. Mr McLaughlin: We accept that an ageing fleet would have substantial modernisation needs, particularly as regards safety. In your opinion, did the sea-fishing industry lose out as a result of unspent funding?

136. Dr M McKibbin: We underspent in the initial financial instrument for fisheries guidance (FIFG) programme. First, we moved money between schemes. As the Committee will be aware, there was an underspend in the 1990’s modernisation scheme — there was a £3·1 million spend against a £4·1 million allocation. Some of that money was reallocated; to use up some of the shortfall, £330,000 was spent on improving port facilities. Given that the balance of the funding and modernisation was not required, we spent only £43·7 million European currency units (ecu) against our £46·7 million ecu valuation. The fact that I am talking about ecus rather than euros shows that the scheme is a little dated. Yes, we tried to utilise money in other areas of fisheries, but there was a slight underspend due to, for instance, £1 million worth of grants not being taken up in the modernisation scheme. However, we had the facility to move money, and we utilised that facility when we could.

137. Mr Liam McKibben (Department of Agriculture and Rural Development): We do not envisage any underspend with the current FIFG scheme. Depending on uptake and slippage, we have reallocated money across priorities. Although that programme will end this year, the money is fully committed, and we envisage it being drawn down fully.

138. Mr McLaughlin: You anticipated correctly that I would want to talk about collusion and decommissioning. Paragraph 3.9 of the report states that consultants had identified an inherent risk of collusion in the 1993-98 decommissioning scheme and that that collusion could increase. In fact, that was shown to have happened. A similar report, which also pointed to that risk of collusion, was produced for the Ministry of Agriculture, Fisheries and Food (MAFF) in Britain. In those circumstances, why was the scheme allowed to run unaltered? Did you decommission or disregard that advice?

139. Dr M McKibbin: No. In their review, Nautilus Consultants indicated that the system that was used increased the risk of collusion as the scheme progressed, and DARD agreed that there was a risk of collusion. Let me just make sure that everyone understands what was meant by collusion: the consultants described that risk of collusion as fishermen acquiring knowledge of previously successful bids, not fishermen colluding on their next bids for the scheme. However, neither DARD nor the consultants found any evidence of widespread collusion. Indeed, the report from Nautilus Consultants said that the competitive tendering process that was used at the time was effective and delivered value for money. That should give the Committee a little context.

140. I assume that Mr McLaughlin is referring to the fact that, during the 1993-98 decommissioning scheme, the bids that were submitted increased quite dramatically. They increased from £321 for each VCU in 1993 to £758 for each VCU in 1998. The consultants said that that increase could also have been due to the increasing profitablility in the fishing sector throughout that period, which meant that the vessels were worth more. However, we must ask whether there is any other evidence to support that view. From 1993 to 1996, the value of a nephrops licence, for instance, increased by 102% to almost £400. Therefore, the value of licences increased during that period, as did the value of vessels. Were we surprised that decommissioning bids were higher as the industry became more profitable? No, we were not. That is an important factor.

141. However, I acknowledge that there was a risk of collusion, as did the consultants. What did we do about that? Richard Banks, a consultant who carried out some work for us, said that the way to minimise the collusion risk — which I imagine we will discuss shortly — was to set a strike price. That was done to try to avoid future collusion. The Department accepted that recommendation and moved to a strike-price system in the 2001 scheme.

142. Mr McLaughlin: We will come to that. In paragraph 3.12 of the report, the Department cites the sealed-bid process as a defence against collusion. That cannot be a serious proposition. People in the industry compared notes and identified a means of manipulating the process. The sealed-bid system was no protection at all and cannot be offered as a serious defence.

143. Dr M McKibbin: It is good practice to submit sealed bids. Whether it stops collusion of the type that we are discussing —

144. Mr McLaughlin: That was what you were being asked about when you proffered that explanation. I must say that I find that incredible.

145. Dr M McKibbin: No evidence of collusion was found by either the Department or the consultants. Rising profitability in the sector could account for a significant rise in bids. Did the bids rise above their commercial value? I can give you two other pieces of information in answer to that. In the UK, the evidence shows that 56% of those who submitted bids withdrew them. They did so because they did not think that they were getting sufficient money for their submission. Some 40% of those whose bids were refused sold their vessels for a higher price than they would otherwise have got. That supports the contention that there was rising profitability in the sector.

146. If you ask me whether a sealed bid will, on its own, stop collusion, my answer is that it will not. However, I believe it to be good practice to require sealed bids. However, I do not portray that as —

147. Mr McLaughlin: Does that explain why the scheme remained unaltered for six years, during which time you were given authoritative advice that collusion was a potential danger? We are not dealing with the issue of whether collusion was proven: consultants told the Department that collusion was an inherent danger, and I am trying to understand what the Department did about it.

148. Mr L McKibben: The report to which you refer was produced in 1997. That was the last year of any round of decommissioning schemes. No boats were decommissioned under that scheme after that consultants’ report was made available to us. It was a UK scheme and a UK report.

149. Dr M McKibbin: Subsequent to that, we adopted the strike-price approach, which was designed to remove or minimise the risk of collusion.

150. Mr Lavery: The other point that members might take into account is that it was a United Kingdom-wide scheme. Although there was a risk of collusion, it was not that easy for someone in the County Down fishing industry to know what someone in Peterhead or on the south coast of England was offering by way of a bid. Competition was inherent in the scheme, and there was a lack of knowledge about what was happening around the UK. Therefore, protections existed.

151. Mr McLaughlin: I will ask a general question that occurred to me when I read the Audit Office report. The Department was operating modernisation and decommissioning schemes almost in parallel — although not necessarily consistently — between 1994 and 2003. Were any vessels that received modernisation grants subsequently decommissioned?

152. Dr M McKibbin: We are not familiar with the mid-1990s scheme. That was run by MAFF, and we do not have details on it. However, to answer your question, I am aware of 10 vessels that received modernisation grants, nine of which were in the 2001 scheme and one that was in the 2003 scheme. Four of those vessels were decommissioned after the retention period for the modernisation grant had run out, but six were decommissioned in the retention period.

153. Clawback that totalled £55,000 was obtained from the six vessels. Therefore, there was a mechanism to claw back money that was given to people who did not retain the equipment for as long as they should. The whole grant was not taken back; there was a sliding scale. For example, if the vessel was meant to have the equipment for six years, and it had it for only four, it would have lost about one third of the grant.

154. Mr McLaughlin: People can understand why a modernisation grant would be made available for safety reasons, even if the vessel were to be taken out of commission after a relatively short time. However, there will be a perception that it was a waste of money, particularly in the case of the six vessels that were decommissioned in the retention period. That goes back to the original question about the benchmarks that the Department was using.

155. Dr M McKibbin: It is difficult to look into the future to see how profitable the sector will be. Had the sector been more profitable, there is less chance that there would have been people who would have taken up the decommissioning scheme.

156. At least as far as the public purse is concerned, we are talking about relatively few vessels. One hundred vessels were decommissioned between 1994 and 2004. We are talking about six vessels, and the public money was clawed back appropriately. That money would have been deducted from any decommissioning grant that was given. We are not talking about something that was widespread, and, at least, appropriate mechanisms were in place and were discharged appropriately by the Department.

157. Mr McLaughlin: People may be concerned that it happened at all. How do you intend to prevent that from happening in the future? Presumably, the various supports to the fishing industry that are provided by the EU, the Government in London, or the Department will continue. How will you ensure that such things will not happen again?

158. Mr Lavery: Before I answer that point, it is important to consider the issue from the fishermen’s point of view. In the 1990s, a skipper was faced with applying for a modernisation grant or applying for decommissioning. He could try to work out how to position his vessel and his income for the next few years and decide what was best.

159. That choice was not easy. He was faced with changes in total allowable catches, in his quota, and in the rules according to which he was allowed to fish. For instance, the Department could tell a skipper that, because he took a modernisation grant the previous year, he would not be eligible for decommissioning for the next five years. That would be one way of doing it. However, that would also be telling him that he was ineligible for decommissioning even though the Government were changing the rules on how long he could stay at sea, where he could fish, what he could fish for, and what gear he could use. The fisherman might consider that to be unfair, because the Government were asking him to make a judgement but then changing the rules.

160. During the 1990s, the rules changed very quickly and dynamically, and the industry was faced repeatedly with making decisions, more or less annually, about what was best for it. It was, therefore, inevitable that fishermen were saying that they could make a go of it one year and, a few years later, saying that it would suit them to decommission a particular vessel and licence.

161. Looking to the future, we will consider how to best manage such issues. At present, decommissioning is an option only if it forms part of an effort-reduction plan that is connected to the stock health. That is current policy.

162. Dr M McKibbin: Imagine having thought, two years ago, that fuel prices would be at their present level. It is very difficult to look ahead, as Mr Lavery said, and say, “If you do this, you cannot do that”.

163. Mr McLaughlin: Mr Lavery has given us a good explanation of the skippers’ perspective. Although I sympathise with the case that he presented, that is not what we are examining today. We are talking about the Department’s response. I realise that the scenario is changing for the Department as well, but there are lessons for everyone to learn.

164. Dr M McKibbin: There are, and that is the reason that the evidence of the clawback shows that we are looking after public funds appropriately now.

165. Mr Beggs: Paragraph 3.15 of the Audit Office report states that the targeting of the 2001 decommissioning scheme was based on records that were between five and eight years old, and therefore out of date. Why did the Department not make the effort to gather more up-to-date information on catches to reflect a more realistic position?

166. Dr M McKibbin: One must ask whether one believes that fishing patterns have changed so much. New entrants came into the scheme, and it is important to ask why fixed-quota allocations (FQA) from 1994 to 1996 were being used. One reason for doing so is that they were introduced only two years previously, and we were trying to keep a reasonably consistent means of appraisal about whether an individual was eligible.

167. We tried to take account of the fishing effort by specifying that the applicant had to have a minimum of 75 days at sea. We sought to verify the applicant’s claims against his logbook entries. By adopting the approach that we did, the implication was that the scheme was inappropriate and less effective than it might otherwise have been. The consultant Richard Banks, who carried out some work in this area, said that by using the method of selection that we did, rather than the more recent information, six vessels, which were defined as white fish vessels, fell outside the 300 FQA criteria that were used.

168. Most of those vessels were new, and the individuals had leased, rather than bought, quota. The impact of the decision to use the method of selection that we chose was relatively minor. Regardless of what method is chosen, there will be winners and losers. In this case, most of the losers were those with new vessels and those who leased, rather than bought, quota.

169. Mr Beggs: Do you agree that the use of outdated, inaccurate data could have resulted in inequities in the handling of the scheme? I could understand if you had used the information on those who bought quota, but you did not do that.

170. Dr M McKibbin: With my example of the six vessels, I have tried to give you a picture of the extent of the outfall of that. In its efforts to overcome that criticism, the Department has taken those points on board and revised the criteria to improve the targeting of vessels that fish vulnerable stocks by stipulating, for instance, that the vessel must have caught at least three tons of cod — in this case it was white fish — in the two years prior to the introduction of the 2003 scheme.

171. Therefore, we have improved and, it is hoped, overcome the exact criticism. I agree that it is better to use up-to-date information, but the consequences of our not doing so were minimal in the overall scheme of things.

172. Mr Beggs: You mentioned the professional advice that you received in the process. Paragraph 3.34, which discusses the 2001 decommissioning scheme, notes that the Department misinterpreted the advice that was given to it by its expert fisheries economist. Given the new and innovative nature of the strike-price approach that the Department used, before the grant offers were issued, why did it not consult with its expert on whether the scheme was being applied as he intended?

173. Dr M McKibbin: The consultant said several things. He said that we should have two categories — the white-fish category and the nephrop-type category. He also said that we should set a strike price to minimise the risk of collusion, and that if the bid price was below the strike price, when people applied for grants, we should apply that system. We did all that.

174. However, the difficulty arose in our interpretation of his ranking system. We took advice, which we thought we had interpreted correctly, but, during the subsequent judicial review, we discovered that we had misinterpreted it. I believe that the Department went to some effort to determine that it was interpreting the scheme correctly.

175. Mr Banks sent the Department one piece of correspondence highlighting his concerns, but I cannot find a record of response on file to that concern being expressed, so it may have been overlooked. Once the judicial review discovered that we were not applying the procedures in they way that we should have been, we did all that we could to rectify the situation.

176. Mr Beggs: Why was the misinterpretation of the strike-price mechanism not discovered during the various appeal stages? Although you had established various internal mechanisms, the misinterpretation was not discovered. Why was that?

177. Dr M McKibbin: Those people judged the Department to have interpreted the criteria correctly. The “bid” referred to in criterion 1 and criterion 5 on the application form could be interpreted as the vessel-bid price rather than the vessel price divided by VCU.

178. Mr Beggs: Did any of those people have any legal experience or expertise?

179. Dr M McKibbin: Legal advice was taken during the preparation of the legislation to enact the scheme.

180. Mr Beggs: Did anyone on the appeal panel have the legal expertise to interpret the legislation?

181. Dr M McKibbin: I am unaware of whether any of the panellists were legally qualified. However, the panel would have sought appropriate legal advice. as long as they had access to the information, the requirement that individuals must be solicitors or barristers would not be a criterion used to select a panel.

182. Mr Beggs: Given the significant legal costs incurred after losing the case, do you accept that it would have been better to seek legal advice and expertise earlier?

183. Dr M McKibbin: I would have liked to know the outcome of the judicial review at an earlier stage, because our legal advice suggested that our interpretation was correct. During court proceedings, even a black and white case can become grey quickly. We believed that our interpretation was correct. However, our interpretation was found to be incorrect, and we accept fully the judicial review’s findings. However, I am unsure whether I would have sought legal advice elsewhere had I been in the same position as the individuals at that time.

184. Mr Beggs: In December 2001, before the series of appeals, a letter of correspondence from the fisheries economist — to which you referred earlier — outlined that the Department had made an error with the strike price. Why was that information not brought to the attention of the appeal panels?

185. Dr M McKibbin: I cannot answer that question, because I can find no record of the response on file. Only Mr Banks’s letter expressing his concern is on file.

186. Mr Beggs: Is it not highly significant that the economist who designed the schemes wrote to the Department to outline that it had interpreted the process incorrectly?

187. Dr M McKibbin: I accept that; you are absolutely right. There should have been a response. I am unsure whether there was a verbal response at the time, but I would have preferred a proper written response to Mr Banks and the results of those deliberations factored into our administration of the scheme. The Department is at fault, because there is no record of consideration of that letter before the appeals process.

188. Mr Beggs: Do you accept that, if that letter had been forwarded to the appeal panels and been dealt with appropriately, significant legal costs could have been avoided?

189. Dr M McKibbin: Mr Banks’s letter outlined how he believed the scheme should have been interpreted and applied. Our legal advice suggested that our interpretation of the legislation was correct.

190. Mr Lavery: Mr Banks’s advice was that he intended the strike-price mechanism to be applied on a bid price per VCU. However, by the time that he expressed concern, legislation had been implemented, and, therefore, the interpretation of that legislation was the major issue for us. The Department was consistently advised that its interpretation was defensible. However, the judicial review reached a different conclusion.

191. Mr Beggs: I will move on. Paragraph 3.36, on the 2001 vessel-decommissioning scheme, states that the

“appeal against the Department was lodged by a representative of one of the Producer Organisations”,

192. and that there was a clear lack of understanding at the highest level in the industry as to how the Department would operate the scheme. Does that not undermine the Department’s view that adequate consultation with the industry took place before the launch of the 2001 scheme? After all, the Department conceded that there was

“ambiguity and a lack of clarity in the legislation”.

193. Dr M McKibbin: Both formal and informal consultation took place with the industry before the various decommissioning schemes were introduced. Various points were raised and taken into account in finalising the scheme. The producers’ organisations commented on the disposal of decommissioning vessels, and those comments were accepted and implemented.

194. There is no record on file of any producers’ organisations commenting on the specific issues of how the strike-price mechanism would operate. I accept, however, that subsequent events meant that there were different interpretations of that. We do consult extensively, and have done over recent years, with stakeholders on a range of issues, including annual discussions on the annual catch, quotas, inshore fisheries matters and the stakeholder advisory group, as well as discussions with the industry on Cabinet Office reports on net benefits.

195. There is an ongoing consultation with producers’ organisations, as well as meetings with the Minister. The Minister has just announced the establishment of a new fisheries forum that will include all the key stakeholders. I hope that that will result in more effective consultation.

196. We are trying to improve from where we were to where we are. I hope that the new forum will assist in ensuring meaningful and effective communication and consultation.

197. Mr Beggs: Paragraph 3.38 explains that 22 vessel owners were paid substantially more to decommission than they had actually asked for. That means the bids were uplifted by more than £40,000 each, costing the Department an additional £900,000. Why pay out more than was asked for?

198. Mr Wells: Generosity?

199. Dr M McKibbin: Not quite. As I said earlier, the strike-price mechanism was introduced in response to the risk of collusion. The consultant advised that we should set two strike prices — one for each category — and that bids lower than strike price would be paid. That clear interpretation was in the notes for guidance.

200. You mentioned producers’ organisations. Both producers’ organisations were opposed to the strike-price mechanism when it was first considered, believing that it would probably lead to lower bids and offers.

201. The fishermen made low bids because they believed that that would ensure that they were put on to the decommissioning scheme. The bids submitted provide clear evidence of that, two of which illustrate my point. One bid was £2·33 per VCU, and the other was £3·84 per VCU. The strike price for white fish was £779 per VCU.

202. The fishermen did not expect to be paid at the rate at which they offered. They put in a low bid to be included on the scheme and to get paid the strike price. The notes for guidance illustrated that case. To say that the costs to Government are calculated by extrapolating that by not paying the bid price offered is far-fetched.

203. Mr Beggs: Do you agree with the NIAO’s comments, in paragraph 3.34, that it would have been better to set the strike price as an upper ceiling on the level of grant to be paid, rather than set it as a fixed amount to be paid, irrespective of how much the vessel owner bid? Provided that the applicants fully understood the method being used, do you accept those comments?

204. Dr M McKibbin: Yes, we could adopt such a system. At the time, the fisheries expert did not recommend that. Having seen the perception of deadweight in the 2001 decommissioning scheme, we can see the attraction of the NIAO’s suggestion. I accept that.

205. Mr Beggs: In paragraph 3.40, the Department says that the strike-price mechanism, by its nature, induces owners to make low bids — on a tactical basis, to which you referred — to deflate the strike price, which, in turn, delivers value for money. What evidence is there that vessel owners made lower bids as part of the strike-price mechanism? Was it just those two bids, or were a range of bids made by other vessel owners?

206. Dr M McKibbin: Other vessel owners made a range of bids, right up to the strike-price level. Some made bids above the strike-price level. However, if a vessel owner is told in advance that he is to be paid the strike price if he makes a low bid, it is not unreasonable to expect low bids to be made. That was the nature of the scheme. The strike-price mechanism was introduced in order to avoid the risk of collusion.

207. Mr Beggs: How did the average cost per ton of the 2001 vessel-decommissioning scheme in Northern Ireland compare with the scheme in Great Britain?

208. Dr M McKibbin: I do not have that information.

209. Mr Beggs: Will you forward that information to the Committee?

210. Dr M McKibbin: I will try to give the Committee some comfort. If we were losing strike prices around £779 per VCU for the white-fish fleet, the book value was sitting at £860. The strike price was less than the book value of the fleet, from a value-for-money perspective.

211. Mr Beggs: I am thinking about value for money. Will you forward the information on comparisons to the Committee?

212. Dr M McKibbin: Absolutely.

213. Mr Beggs: Finally, if the strike price was a flat rate that the Department paid, why was there no difference in the amounts paid for the vessels for other reasons, such as age or level of fishing activity. The state of an engine will affect a vessel’s efficiency and its ability to return a healthy profit. If you were paying a flat rate, why did you not take the condition of vessels into consideration?

214. Dr M McKibbin: I am unaware of the detail of the design of the scheme, but if one vessel was much more profitable than another, it is less likely that the owner of such a vessel would make an application. It is more likely that the owners of older and less efficient vessels will apply. My colleagues may be able to tell the Committee more about the design of the scheme.

215. Mr Beggs: Do you accept that an older vessel is more likely to end up on the scrap heap rather than find some alternative use?

216. Dr M McKibbin: I agree. When a vessel is decommissioned, it is effectively put out of action. One might assume that the residual effect of losing the older elements of the fleet, for good or ill, is that the remainder of the fleet will be more productive and more profitable, and probably safer, because of the facilities that those vessels have on board. The condition of the fleet would also contribute to an improvement in the industry’s sustainability.

217. Mr Lavery: There are two issues to consider when it comes to value for money. First, although we do not have a reference point for cost per ton, the average cost per vessel capacity unit in the strike-price scheme was £684 per VCU, which was well below the £758 per VCU that we were paying in 1998 at UK level.

218. Secondly, on the issue of older vessels, we were decommissioning the vessel and the licence. The licence is for permission to fish. Therefore, we were getting rid of a “permission to fish” in the fleet; that was an important element of what was being purchased. Although the hull of the vessel is important in the decommissioning scheme, so is the licence.

219. The Chairperson: Dawn Purvis sends her apologies. John Dallat will ask her question.

220. Mr Dallat: I am glad that no one asked for pictures of the decommissioning.

221. According to paragraph 3.4, the Department did not adopt the strike-price mechanism in the 2003 decommissioning scheme. Instead, it reverted to the selection criteria that were used in the 1993-98 scheme. Was that wise, given the earlier scheme’s problems with suspected collusion among bidders and the higher costs that resulted?

222. Dr M McKibbin: At that time, the strike-price mechanism that we were using was subject to an appeals and judicial-review process. We were unwilling to reintroduce the scheme while a legal judgement on whether it was being operated properly had not been arrived at. That is why we returned to the original format.

223. Mr Dallat: Therefore, there were sound reasons for doing that? You were not just making up the rules as you went along?

224. Dr M McKibbin: No. Mr Beggs’s suggestions for improving the strike-price mechanism seem to be a good way in which to proceed. It was really because of the legal uncertainty around how that was being applied. We did not want to introduce and apply another scheme incorrectly, which, it turned out, would have been the case.

225. Mr Dallat: Even though you reassured the Committee at the beginning of the meeting, are you certain that the same shambles will never happen again?

226. Dr M McKibbin: I presume that by “shambles” you mean the risk of collusion around the bids for decommissioning. I reiterate that no evidence of collusion has been produced by DARD or its consultants, and it was felt that the increased rate could be explained by the sector’s rising profitability.

227. We will draw on the lessons learned from both schemes — about the bidding and strike-rate systems — to help us carry out the new European Fisheries Fund scheme in 2008 and any associated decommissioning scheme. I assure you that we will consider the benefits of both.

228. Mr Dallat: Do you accept that the real victims were fishermen, who were already on their knees?

229. Dr M McKibbin: Sorry, victims in what sense? Do you suggest that those who got grants —

230. Mr Dallat: I say “victims” because of the demise of the entire fishing industry and the draconian rules that were imposed from Europe. The fishermen’s one hope of salvaging something from the wreck was blown, because of the manner in which the Department flummoxed people on almost everything.

231. Dr M McKibbin: That is too much of a generalisation for me to accept in its entirety. I accept that there were elements of the two schemes that we could have administrated better, but that improved with time.

232. I have concentrated on the impact of the scheme and the relatively small impact of some decisions not being made as well they should have been. I would not lay the difficulties facing the fishing industry at the feet of the Department.

233. Mr Dallat: The Committee will make its recommendations. I hope that your Department accepts them graciously.

234. Mr Wells: I assure you, Dr McKibbin, that if a similar scheme is introduced in Kilkeel, you will be branded generous. This may be your opportunity to score brownie points. In my time as an MLA, I received no complaints from people who were overpaid under the decommissioning scheme.

235. I draw your attention to paragraph 3.47 of the Audit Office report, which indicates that you failed to carry out a post-project evaluation (PPE) of the 2001 scheme before introducing the 2003 scheme. Given the fact that the earlier scheme suffered multiple failures, why did you not insist upon a post-project evaluation being completed, in order that lessons learned could be applied to the second scheme?

236. Dr M McKibbin: I have no doubt that the post-project evaluation of the 2001 scheme should have been carried out earlier. The PPE commenced in May 2003 and was completed in 2004, and there is nothing on file to suggest that the outcome of that 2001 evaluation was used in the 2003 scheme.

237. Officials involved in the 2001 scheme were also involved in the design of the 2003 scheme and would have used their knowledge; however, I fully accept the criticism that the PPE should have been done in a more timely manner. I reassure the Committee that we now carry out PPEs as the green book dictates.

238. All PPEs greater than £1 million are forwarded to the Department of Finance and Personnel. Our economics division carries out a 10% check on PPEs between £250,000 and £1 million, and, below that, sampling is random.

239. In order to prepare for this meeting, I asked my Department how many PPEs it has carried out. Therefore, to give you an example, the Department has carried out approximately 900 post-project evaluations in the past 12 months, which represents a huge level of PPE activity. The level of activity and the number of evaluations surprised me. However, the Department must hold up its hands in that regard and ensure that it carries out PPEs in a more timely manner in future.

240. Mr Wells: The Department may have to hold up its hands a second time, because two years after the 2003 scheme had been completed, the Department had not carried out a PPE for it either. Surely, having learnt the lessons of 2001, you would have at least given instructions for the 2003 evaluations to be carried out immediately.

241. Dr M McKibbin: To be honest, I was more concerned about the 2001 scheme than the 2003 scheme, because a PPE was carried out on the 2003 scheme, but DARD economists said that it required further amendments in order to comply fully with the green book. I truly wish the PPE to be carried out in time for it to inform the upcoming EFF scheme. Work is ongoing to complete the post-project evaluation so that it can inform the next scheme. One really carries out a PPE to inform the subsequent scheme, which is now the scheme that we will introduce later this year.

242. Mr Wells: You are telling me that, five years later, the PPE on the 2003 scheme has yet to be completed?

243. Dr M McKibbin: That is correct. One would not carry out a PPE until the scheme was completed and sufficient time had passed for its success to be established. The PPE does not go back to 2003 when the decommissioning scheme commenced. I want it to be carried out in time to inform the 2008 scheme. If you are asking me whether it should have been carried out sooner, I accept your criticism, because it should have been.

244. Mr Wells: Mr Doran, this is not the first time that the Committee has encountered that issue. It seems that the Department is not too exercised about completing such evaluations on time. You have issued guidance before, so why are the instructions not being followed? The difficulties that that is causing are clear.

245. Mr Doran: It is difficult for me to answer that specifically. Possibly, it has something to do with the fact that the guidance for economic appraisal, which incorporates post-project evaluation, was set out in much greater detail in 2003. It has taken some time for Departments to catch up with that guidance, although I am not trying to use that as an excuse. In the past 12 months, the Department of Finance and Personnel has written directly to accounting officers, as a result of the recommendations that were made about post-project evaluations after the Belfast to Bangor rail-line project. Therefore, we are emphasising that.

246. There is also the obvious point that the Department of Finance and Personnel must take some responsibility. When we approve schemes, we are required to ask for post-project evaluations. In this case, we approved the 2003 scheme without having formally received the post-project evaluation for the 2001 scheme, despite having made it a point with the Department concerned. To some extent, DFP is in a position to enforce the evaluations, and it has picked up that point in the past 12 months and is emphasising it.

247. Mr Wells: Paragraphs 4.2 and 4.3 of the Audit Office report deal with the impact of the 1994-99 modernisation scheme. I note that uptake was greater than anticipated, but the size of the projects and the overall extent of modernisation that was hoped for did not materialise. Moreover, it is significant that one third of the budget remained unspent. Why did the industry not respond to the scheme to the expected extent?

248. Dr M McKibbin: I shall take those two issues — the number of awards and their value — separately. The budget was £5 million. As I said earlier, it was decreased by £600,000, because no new vessels were constructed. That left £4·4 million. The grants awarded totalled £4·122 million. In other words, 94% of the budget was awarded. As it turned out, 28 cases, totalling £1·014 million, were not taken up by the industry. That is why the actual expenditure on grants ended up as £3·1 million.

249. Mr Wells: That is 38% below target.

250. Dr M McKibbin: It was reduced to £4∙4 million in the mid-term review of the scheme. The Department awarded 94% of the money, but it was not all taken up by the fishermen. We offered the grant, but it was not all taken up.

251. A greater number of smaller-scale schemes was carried out in Northern Ireland compared with the number in Great Britain. I look back to the profitability of the fleet in the 1990s. The average scheme costs £40,000 and the average grant was £20,000, so the skipper himself had to find £20,000. As I said earlier, average profitability in the sector per year was roughly £11,000 to £21,000. It is not surprising that the number of projects was higher and that they were smaller in scale.

252. Fishing patterns in Northern Ireland were different to those that prevailed in Great Britain. Northern Ireland vessels tended to be away at sea for shorter periods. For example, shelter decking, which was more relevant to the GB fleet, was not so important to the Northern Ireland fleet. Members may ask about the relative success of the scheme, and how it compared with schemes in Great Britain. In Great Britain, there was a five-year target of 200 schemes a year, which achieved 372 projects, against a target of 1,000 projects. However, the Department exceeded its target for the number of projects. In GB, three million ecus were spent as part of a 5∙7 million ecu grant budget. Therefore, overall, we performed better than Great Britain. I draw attention to that because, earlier on, members asked us to provide benchmarks.

253. Mr Wells: Did the Department misunderstand, or misread, the needs of the fleet? The Department wanted the fleet to concentrate on issues such as crew safety, onboard handling and fish storage. However, according to paragraph 4.5, the external consultants concluded that the grant was seen by many applicants as a means of updating ageing components on vessels.

254. Dr M McKibbin: At least half of the grant awards were associated with safety equipment, which we were keen to see improved. The Audit Office cites case study A, and when I looked back through that case, I noticed that the Sea Fish Industry Authority had carried out an inspection of the vessel and stated that it had been maintained in a good condition. The Northern Ireland Sea Fisheries Inspectorate found that the vessel was in reasonable condition and that there was no doubt that work to be carried out would improve safety for the crew and of the vessel. In that instance, which was highlighted in the report, the conclusion was reached that the vessel had been properly maintained and that there was no question of simply replacing ageing equipment. The grant had the effect of improving safety. Furthermore, replacement of an old piece of equipment with an improved and safer piece is a capital upgrade that satisfied the terms of the scheme. I was pleased at the number of safety requests made.

255. Mr Wells: Could the Department have done more to steer the industry towards what you perceive to be best use of the money? Was any attempt made to intervene or encourage fishermen to improve safety and fish handling?

256. Dr M McKibbin: The scheme had four specific objectives, of which safety was one. The Nautilus Report advised us as to what should be targeted in the 2002 modernisation scheme. The very aspect that Mr Wells has highlighted — safety — was one of two issues that the report said should be targeted in that scheme. As I mentioned earlier, 28 applications were turned down because they did not satisfy the two criteria that we set: crew and vessel safety; and product quality.

257. You are right to say that it is better to target the needs of the fleet if they can be identified. As I said earlier, the Minister announced in April that she is organising an assessment of the modernisation needs of the fleet. That will inform the next scheme.

258. Mr Wells: As an aside, if something does not happen with the price of diesel soon, there will not be a fishing industry to worry about, because it is in absolute crisis.

259. The Chairperson: Thomas Burns was meant to ask the next question, but he has sent his apologies. I hope that members will agree if we write to the accounting officer with his question.

260. We know that the Department has been running a series of decommissioning schemes over the past 15 years. However, paragraph 4.20 of the report states that an optimum size for the fleet in the North of Ireland was not determined during that time. Can you explain why that did not happen? How can the Department do that, given that it does not know the size and structure of the industry that it wants to sustain?

261. Dr M McKibbin: That issue is not completely dissimilar to the modernisation fleet survey issue. The industry is dynamic, and, as Mr Lavery said, many factors beyond the industry’s own influence have an impact on the sector. It is particularly difficult to determine an optimum size for a fleet, and, as Mr Wells mentioned a moment ago, if something is not done about the price of diesel, the fleet size will change dramatically. It is therefore difficult to work out a precise optimum fleet size, bearing in mind the myriad of issues that are involved.

262. In 2006, Diana Tingley completed a Northern Ireland fleet futures analysis covering the period up to 2013. She examined several issues that are associated with total annual catch, costs, and profits. She made an unlikely analysis of what the size of the NI fleet would be in 2013 under three different scenarios: pessimistic; best guess; and optimistic. Incidentally, under all those scenarios, the semi-pelagic white fish fleet and the twin-rig nephrops fleet would have needed to have been smaller.

263. If we look at that analysis, some incorrect assumptions were made. We have spoken about the difficulty of looking ahead. Mr Wells mentioned the huge increase in the price of diesel, but in 2004 it was assumed that the nephrops price for each kilogram would remain the same. However, it has increased from £2∙92 to £4∙30 for each kilogram. That has a big impact on the ultimate size of the fleet.

264. Taking that into account, the Department proposes to update the Diana Tingley fleet futures analysis using the information on diesel, changes in fishing patterns, and fish prices. All that will help to inform us. I imagine that we will end up with a range of different scenarios, so we will try to have that information available to us before the 2008 EFF scheme is introduced. Again, therefore, it can be seen that the Department is trying to improve the information base.

265. Mr Beggs: In answer to a question that Mr Wells asked, you said that there were over 900 post-project evaluations. It sounds as though designing projects, assessing the applicants, and then conducting the post-project evaluation is an industry in itself. Is this bureaucracy gone mad? Over what period did those 900 projects occur?

266. Dr M McKibbin: Twelve months.

267. Mr Beggs: Will you review or reassess them?

268. Dr M McKibbin: I was criticised just a few minutes ago for not carrying out one of those projects, so perhaps we should talk about 901 projects. [Laughter.] In all seriousness, we have seen a peak in post-project evaluations in that the rural development and fisheries programmes have just come to an end, and there tend to be more post-project evaluations at the end of a programme.

269. Over the past 12 months, between 160 and 170 economic appraisals have been carried out, which is what happens before the thing kicks off. I imagine that we will see a switch between post-project evaluations and economic appraisals as the new programmes start to move in. We must remember that the Department tries to make those proportionate, and I mentioned earlier that for small schemes between zero and £20,000, we use a five-page economic appraisal pro forma, and for up to £150,000, we use a 16-page pro forma.

270. First, we are obliged to justify the capital money that we invest, and, secondly, after the investment has been made, we must learn lessons about how that money can be better targeted in the future. Although as you suggested all that work is an industry in itself, it is also meant to lead to better decisions in the future.

271. Mr Wells: You quoted figures for prawn prices. The unit that is used locally to measure weights is stones. What unit of weight do you use?

272. Dr M McKibbin: I said £2·92 for each kilogram to £4·30 for each kilogram.

273. Mr Wells: What is that in real money?

274. Dr M McKibbin: One stone is roughly equal to 6·4 kg.

275. Mr Wells: I cannot calculate that.

276. Dr M McKibbin: Multiply 2·92 by 6·4. [Laughter.]

277. Does anyone have a calculator?

278. Mr Wells: That is a fundamental figure; the other figures that I hear, such as £14 for each stone or £18 for each stone, mean nothing.

279. Dr M McKibbin: By multiplying 2·92 by 6·4 you get the equivalent cost in stone. It was approximately £18 in 2004. Now, it is around £25 for each stone.

280. Mr Wells: Is it really £25 for each stone? That figure means something to the fisherman at Kilkeel harbour; they would not quote the other figure.

281. Dr M McKibbin: The next time that I am in Kilkeel, I will remember to speak in pounds and stones.

282. The Chairperson: Thank you for your contribution.

283. Obviously, there is a wide range of issues and questions, so thank you for taking the time to come in and answer them.

284. Fishing is a relatively small, but important, sector of local industry. It is in a state of transition and faces many challenges, which have been outlined today. One such challenge is how to deal with the cost of diesel. Your Department is uniquely placed to help the sector meet all those challenges.

285. To do so effectively, your Department’s administration must better handle future support schemes. You have recognised that mistakes were made, and you have gone some way to respond. Obviously, the Committee will draw some lessons from that, of which we will expect your Department to take heed.

Appendix 3

Correspondence

Chairperson’s Letter of
20 June 2008 to Dr Malcolm McKibbin

Public Accounts Committee
Parliament Buildings
Room 371
Stormont
BELFAST
BT4 3XX
Tel: (028) 9052 1208
Fax: (028) 9052 0366

Northern Ireland Assembly
PUBLIC ACCOUNTS COMMITTEE

Date: 20 June 2008

Dr Malcolm McKibbin
Accounting Officer
Department for Agriculture and Rural Development
Dundonald House
Upper Newtownards Road
Belfast
BT4 3SB

Dear Malcolm

Re: Evidence session on 19 June 2008 Sea Fisheries: Vessel Modernisation and Decommissioning Schemes

During the evidence session on 19 June, the Committee agreed to forward the outstanding questions to you in writing:

1. How did the ‘average cost per tonne’ of vessels decommissioned in Northern Ireland under the 2001 scheme compare with the ‘average cost per tonne’ decommissioned in Great Britain?

2. Paragraph 4.8 states that, under the 2002 modernisation schemes, the Department introduced targets for the number of safety certificates issued and the number of vessels awarded a recognised quality mark. What targets were set and how successful was the Department in meeting them?

3. Has the Department provided, or funded, any safety training for skippers and crew members?

4. Paragraph 4.11 refers to the outcome of the 1993-98 decommissioning scheme. Having decommissioned nearly 50 vessels, the Department then allowed a very large vessel of some 2,200 tonnes to be added to the fleet. This brought the situation almost back to the starting position, despite having spent nearly £6 million. Was this not defeating the object of the scheme?

I should be grateful for a response by Friday 4th July.

Yours sincerely

Paul Maskey
Chairperson
Public Accounts Committee

Correspondence of
3 July 2008 from Dr Malcolm McKibbin

Mr Paul Maskey
Chairperson
Public Accounts Committee
Northern Ireland Assembly
Parliament Buildings
Room 371
Stormont
BELFAST
BT4 3WX

Dundonald House
Upper Newtownards Road
Belfast BT4 3SB
Tel: 028 9052 4608
Fax: 028 9052 4813
Email: malcolm.mckibbin@dardni.gov.u

Our Ref: PS/1271/08
Date: 3 July 2008

Dear Mr Maskey

Evidence Session on 19 June 2008 Sea Fisheries:
Vessel Modernisation and Decommissioning Schemes

Thank you for your letter of 20 June which set out further questions arising from the evidence session on 19 June. The position in respect of these is set out below.

1. There were separate decommissioning schemes for England, Wales and Scotland in 2001. The table below gives comparative figures on both a tonnage and Vessel Capacity Unit basis. VCUs are recognised to be a more accurate assessment of the fishing capacity of a vessel than tonnage on its own.

UK Decommissioning schemes 2001

Country	Vessels	Tonnage	VCU	Cost	£ per T	£ per VCU
N. Ireland	29	1,924	6,428	4,400,000	2,287	684
England & Wales	32	3,402	9,271	6,100,000	1,793	658
Scotland	97	12,201	29,745	24,800,000	2,033	834

2. Under the 2002 Modernisation Scheme the Department set targets of 870 training certificates issued and 23 vessels awarded a quality mark. Subsequently it was decided to use the Collective Operations Measure under FIFG (Financial Instrument for Fisheries Guidance which was the overall programme within the Building Sustainable Prosperity Programme) to support a range of safety and quality projects to facilitate the delivery of such projects. This enabled the Department to deal with each of the Producer Organisations as a project promoter on behalf of their members rather than having many small separate applications. To date in total we have issued 1,501 certificates and 15 vessels have been awarded a quality mark.

3. Funding has been provided to the Modernisation Scheme and the Collective Operations Measure to provide safety training to 1,501 fishermen. This has covered such areas as safety awareness, health and safety, sea survival, first aid and fire fighting. A further 36 fishermen have received enhanced safety training under a scheme funded through the Fishing Villages Taskforce.

4. The 1993-98 Decommissioning Scheme was intended to reduce overall fleet capacity in order to bring capacity more into line with available fishing opportunities. At that time it was white fish stocks where the main imbalance between fleet capacity and quota availability occurred. The 49 vessels which were decommissioned in Northern Ireland were vessels which either targeted white fish directly or caught white fish as a by-catch in the nephrop’s fishery. This represented a significant reduction in capacity for the main part of the Northern Ireland fleet which targeted Irish Sea white fish and nephrops stocks. The 2200 tonnes vessel which came into the fleet fished pelagic stocks (herring and mackerel) mainly outside of the Irish Sea and thus did not add to the pressure on vulnerable white fish stocks. I do not agree therefore that the fact that this vessel joined the fleet defeated the purpose of the Decommissioning Scheme. In any case there was no power available to the Department to prevent such a vessel joining the fleet providing it had acquired the necessary safety etc consents and a valid fishing licence.

I trust this information is helpful.

Yours sincerely

D M McKIBBIN (Dr)
Permanent Secretary

Appendix 4

List of Witnesses
who gave Oral Evidence
to the Committee

List of Witnesses who gave
Oral Evidence to the Committee

1. Dr Malcolm McKibbin, Accounting Officer, Department of Agriculture and Rural Development.
2. Mr Gerry Lavery, Senior Finance Director, Department of Agriculture and Rural Development.
3. Mr Liam McKibben, Director of Fisheries and Rural Policy Division, Department of Agriculture and Rural Development.
4 . Mr Kieran Donnelly, Deputy Comptroller and Auditor General, Northern Ireland Audit Office.
5. Mr Ciaran Doran, Deputy Treasury Officer of Accounts, Department of Finance and Personnel.