Session 2006/2007

First Report

Public Accounts Committee

Report on
The Upgrade of the
Belfast to Bangor Railway Line

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 21 June 2007

Report: 1/07R (Public Accounts Committee)

Public Accounts Committee
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 John O’Dowd (Chairperson) Mr Roy Beggs (Deputy Chairperson)
Mr Willie Clarke Mr Jonathan Craig Mr John Dallat Mr Simon Hamilton Mr David Hilditch	Mr Trevor Lunn Mr Patsy McGlone Mr Mitchel McLaughlin Ms Dawn Purvis

Table of Contents

List of abbreviations used in the Report

Report

Executive Summary

Summary of Recommendations

Introduction

The Lack of Appropriate Control and Oversight by the
Department for Regional Development

The Capability of Translink to Undertake Major Capital Investment Projects

The Absence of Proper Records Management and
Ineffective Corporate Governance

Appendix 1:

Minutes of Proceedings

Appendix 2:

Minutes of Evidence

Appendix 3:

Committee Clerk’s letter of 01 June 2007 to Mr Gerry McGinn,
Accounting Officer, Department for Regional Development.

Committee Clerk’s letter of 08 June 2007 to Mr Gerry McGinn,
Accounting Officer, Department for Regional Development.

Correspondence of 15 June 2007 from Mr Gerry McGinn,
Accounting Officer, Department for Regional Development.

Appendix 4:

List of Witnesses

Appendix 5:

Details of Unpublished Papers

List of Abbreviations
Used in the Report

C&AG	Comptroller and Auditor General
CIPFA	Chartered Institute of Public Finance and Accountancy
COPE	Centre of Procurement Excellence
DFP	Department of Finance and Personnel
DRD	Department for Regional Development (the Department)
NIAO	Northern Ireland Audit Office
NITHCo	Northern Ireland Transport Holding Company
PSNI	Police Service of Northern Ireland

Executive Summary

The lack of appropriate control and oversight by the Department for Regional Development

1. Translink is responsible for the delivery of public transport services and the Department for Regional Development provides it with significant capital and revenue funding for this purpose. In January 2001 the Department approved a project, with a budget of £14.7 million and scheduled for completion by December 2001, to upgrade the Belfast to Bangor railway line. However the project experienced a number of difficulties with the result that the final cost of the project was almost £34 million and it was completed nine months later than planned in September 2002.

2. The overspend on the project was the result of failures in several key areas. The economic appraisal seriously underestimated the cost of the project and the Committee does not find the Department’s arguments convincing as to why it ignored the warnings from its own economist and from the Department of Finance and Personnel on the accuracy of the cost estimates.

3. When it became clear that the project would far exceed its budget, the Department should have reappraised the project. It failed to do so and it appears the Department bowed to pressure from Translink and allowed an unsustainable project to proceed without the necessary reappraisal. It is entirely unacceptable that no record of this key investment decision exists at the heart of a central Government Department. Despite the multiple failings of the project, the Committee is surprised that even now, some 5 years after completion, the post project evaluation is still not signed off.

4. The Committee was told that all major projects must now go through the Gateway Review process but is astonished to note that, to date, no Translink projects have actually done so, despite there being several projects in excess of £10 million in its capital programme.

5. The Committee welcomes the fact that Translink is now accredited as a Centre of Procurement Excellence and is also pleased to note the introduction of new oversight arrangements and improved controls over the management of capital projects outlined by the Department.

6. The Committee is of the opinion that many of these new controls, such as procurement accreditation, represent basic, common sense practices, which should already have been in place and is not therefore convinced that the previous governance arrangements represented best practice at that time and considered Translink obviously operated beyond normal public sector controls.

7. The Committee is concerned that other public transport projects have lost out as a result of the overspend on this project and have difficulty in understanding how surplus funding of this scale can be found purely from slippage and underspend, as claimed by the Accounting Officer. This suggests poor financial planning within the programme.

8. Overall, it is clear to the Committee that Translink operated at extreme arm’s-length from the Department and that the public purse has paid the penalty for the lack of effective Departmental control and oversight.

The capability of Translink to undertake major capital investment projects

9. The Committee fully accepts that Translink was badly served by its lead consultants, Maunsell Rail, on this project. However many of the subsequent problems could have been mitigated if it had in place basic management systems. The appalling lack of control of contract variations was akin to giving the contractor a blank cheque and, as a consequence, Translink found itself in a position where it had to enter into a protracted settlement process in order to reach agreement on the final costs.

10. Although Translink received advice on the settlement process from a number of sources, it ultimately agreed a final amount of £23 million; a figure which the Department and Translink recognised did not represent good value for money. Indeed, in reaching this settlement, more importance seems to have been given to ensuring that the contractor was adequately recompensed, than ensuring the taxpayer received value for money.

11. Translink decided to terminate Maunsell Rail’s appointment because of the lead consultant’s poor performance with the stated intention of recovering damages from Maunsell Rail. However, the Committee was told that management in Translink did not understand or realise that their rights to claim damages had been given away. The C&AG has estimated an extra cost of £8 to £13 million due to the failures of the lead consultant who was allowed to walk away without any liability. It is totally unsatisfactory that the public purse has to bear the costs of this failure and even worse when this occurs because Translink waived its legitimate rights to claim damages.

12. There was also a significant rescoping of the project including a reduction in the speed limit from 90 to 70 mph; partial rather than full relay of the track; and a significant reduction in bridge work, drainage and sea defences. Despite this, the Committee was told that the reduced specification was quite acceptable and fit for purpose for a lightly loaded passenger line of this nature. This provides ample evidence that the project as originally tendered was seriously over-specified and it is not surprising that it was far in excess of the approved budget.

The absence of proper records management and ineffective corporate governance

13. It is a fundamental requirement of public accountability that proper records are kept of all investment decisions to show, in a transparent manner, how public money has been spent. The Department acknowledged that records management was not up to standard, but indicated that this issue has now been dealt with. Despite this, the Committee is concerned that the Northern Ireland Transport Holding Company (NITHCo) is only in the ‘initial phase’ of a programme to put in place proper records management and documents control and that this will cost the public purse in the region of £1.8 million. The Committee is amazed that it is only now, despite being aware of the C&AG’s concerns, that NITHCo has seen fit to initiate a project and that it should be so costly when the Committee would have expected such basic procedures to be well embedded in all public sector bodies.

14. The lack of documented record is one thing; attempting to alter that record is another entirely. The Committee was deeply disturbed by the attempt of the Director of Corporate Affairs to retract part of the public record relating to the Termination Agreement. This suggests that the record may have been originally distorted or is being subsequently manipulated.

15. The poor records management within Translink was further compounded in this case when a former senior member of staff removed and destroyed a substantial numbers of files. NITHCo’s original investigation into this incident did not address issues of fraud and impropriety. The Committee welcomes the fact that the Department subsequently commissioned a forensic audit which concluded there was no opportunity for fraudulent activity. However, it is clear this was only done in response to the C&AG’s concerns. The Department should have initiated this review much earlier and Translink should have tailored its own investigation specifically to address the risks of fraud and impropriety and engaged relevant independent expertise.

16. There were several instances of excessive generosity associated with the retirement of Translink’s Head of Infrastructure. He was paid a ‘golden handcuff’ of £28,500, the precise reasons for which are not clear. The Committee is outraged by this payment, doubly so because Translink did not seek approval. This serves only to emphasise the inadequacy of the control regime they were operating under. The Head of Infrastructure was further sent off in fine style, benefiting from two retirement functions paid for by Translink. The Committee is astonished that the Director of Corporate Affairs still imagines that paying for retirement functions of this nature is acceptable. The Committee feels compelled to emphasise the damage that expenditure of public funds in this manner does to the credibility of management.

17. Accepted standards of corporate governance were not embedded or operational in NITHCo. It is not at all clear to the Committee how the Chairperson and six non-executive directors of the Board exercised their functions, despite receiving remuneration of £120,000 per annum, and they seem not to have been informed of important issues. The Committee welcomes the review of the new Board’s working relationships and emphasises their need to provide oversight and challenge in cases such as this where an organisation faces a range of financial, reputational and operational risks.

Summary of Recommendations

The lack of appropriate control and oversight by the Department for Regional Development

1. In future, where legitimate, evidence-based concerns regarding the accuracy of cost estimates are highlighted to senior management, the Committee recommends that the Department exerts a more robust challenge, insists on independent validation of key cost estimates, and does not accept unsupported assertions from Translink (See paragraph 7).

2. The Committee recommends that the C&AG review the implementation of the Gateway Review process in DRD and its sponsored bodies and reports back to the Committee (See paragraph 13).

3. The Committee recommends that, in future, all economic appraisals clearly stipulate the timescale for undertaking the associated post project evaluation, that these are undertaken promptly and that this is centrally monitored and the results disseminated by the Department. The Committee requests that the Treasury Officer of Accounts reissues guidance on this matter (See paragraph 16).

4. The Committee recommends that the Department seeks further assurance that the new procedures introduced in Translink following the Currie and Brown report, are in place and operating effectively (See paragraph 22).

5. The Department should issue a copy of the Internal Audit Review report on the operation of its own new oversight controls to the Committee (See paragraph 24).

6. The Committee recommends that, where there are major capital overspends such as the Belfast-Bangor project, there is a need for greater budgetary transparency so that the public and elected representatives can more clearly identify from where the additional money is sourced, and what other projects are losing out as a consequence. The Committee further recommends that the Department of Finance and Personnel ensures that this is the case (See paragraph 29).

7. The Committee recommends that if there is no significant improvement in Translink’s and NITHCo’s performance the Department should undertake a fundamental review of the structures (See paragraph 31).

8. The Committee never wants to see a case again where a major contract is entered into without a proper contract variation procedure in operation. The Committee would like the Department of Finance and Personnel to ensure that public bodies are alert to this (See paragraph 35).

The capability of Translink to undertake major capital investment projects

9. The Committee recommends that the Department of Finance and Personnel makes it clear throughout the public sector that in future situations where a public body is terminating the appointment of a consultant in this way, it ensures that full rights of redress are retained and does not succumb to the expediency of washing its hands of a problem rather than effectively dealing with the issue (See paragraph 42).

10. Translink was unable to demonstrate that designs were reviewed before deciding that payment to their consultants was in order. The Committee was told that Translink has improved its contract management and purchasing procedures. However, the Committee would like a specific explanation of how they propose to ensure that this kind of costly confusion cannot recur (See paragraph 45).

11. The Committee recommends that future Departmental representatives on Translink project boards are alert to any recurrence of additional works being added to the project after the economic appraisal and that the Department of Finance and Personnel revisits the investment appraisal guidelines to ensure that this is absolutely clear (See paragraph 51).

The absence of proper records management and ineffective corporate governance

12. NITHCo is in the initial phase of a programme to put in place proper records management and documents control. The Committee recommends that it establishes a formal action plan for this project with key milestones set to ensure that it is implemented without further delay and that progress is formally monitored and recorded at monthly review meetings with the Department (See paragraph 56).

13. The Committee recommends that in future, all management decisions are fully documented and comprehensive, clear and accurate minutes are maintained of all Board business (See paragraph 58).

14. To ensure that potential issues of fraud are addressed appropriately in future, the Committee recommends that the Department assures itself Translink has a Fraud Response Plan in place in line with those adopted by central Government Departments and that this plan is operating effectively (See paragraph 64).

15. Translink paid a ‘golden handcuff’ of £28,500 to the Head of Infrastructure. In future, all exceptional payments of this kind to individuals anywhere in the public sector should require not just Departmental approval, but DFP approval. The Committee wants to see such payments made transparent in the accounts and would like the C&AG to draw these to the Committee’s attention as a matter of course (See paragraph 67).

16. The Committee understands that the normal practice within the public sector is that retirement functions for staff held in high standing are funded by donations from their colleagues. The Committee recommends that Translink and every other public sector body conforms to this practice (See paragraph 69).

17. Where highly respected individuals are prepared to give time to public boards, the Committee expects Accounting Officers to ensure that their contribution is effectively deployed. In this particular case however, the Committee insists on an assurance from the Chairperson of the Northern Ireland Transport Holding Company that her Board is completely satisfied that it currently receives all of the information relevant to its important oversight role (See paragraph 73).

Introduction

1. The Public Accounts Committee met on 31 May 2007 to consider the Comptroller and Auditor General’s report on "The Upgrade of the Belfast to Bangor Railway Line" (HC 343, Session 2006-07). The witnesses were:

• Mr Gerry McGinn, Accounting Officer, Department for Regional Development.
• Mr David Carson, Director of Public Transport Performance Division, Department for Regional Development.
• Mr Jim Aiken, Director of Corporate Affairs, Northern Ireland Transport Holding Company.
• Mr Clive Bradberry, Head of Infrastructure, Translink.
• Mr John Dowdall, Comptroller and Auditor General.
• Mr David Thomson, Treasury Officer of Accounts, Department of Finance and Personnel.

The Committee also took written evidence from Mr McGinn (Appendix 3).

2. The Belfast-Bangor project was approved in January 2001 with a budget of £14.7 million and scheduled for completion by December 2001. However, the project experienced a number of difficulties, which resulted in a very significant overspend and late delivery. The final cost of the project was almost £34 million and it was completed nine months later than planned in September 2002.

3. In taking evidence, the Committee focussed on a number of issues raised in the C&AG’s report. These were:

• the lack of appropriate control and oversight by the Department for Regional Development;
• the capability of Translink to undertake major capital investment projects; and
• the absence of proper records management and ineffective corporate governance.

The Lack of Appropriate
Control and Oversight by the
Department for Regional Development

4. Translink operates at arm’s length from the Department for Regional Development and is responsible for the delivery of public transport services. The Department provides it with significant capital and revenue funding and is accountable to the Assembly for its activities and performance.

Inaccurate economic appraisal

5. At the time of this project, the Department had in place procedures to regularly review Translink’s operating performance, its capital programme and its economic appraisals. Despite this, there were serious deficiencies in the economic appraisal process associated with this project. Although there was a history of overspend on previous Translink projects, the appraisal seriously underestimated the cost of the project and the Department ignored warnings from its own economist and the Department of Finance and Personnel regarding the accuracy of the cost estimates. In explanation, the Department told the Committee that Translink had brought other projects in on time and within budget; and that it felt safe in accepting the assurance of the independent consultants who undertook the appraisal.

6. The Committee does not find these arguments convincing, especially given the specific concerns raised by the Department’s economist and the Department of Finance and Personnel.

Recommendation 1

7. In future, where legitimate, evidence-based concerns regarding the accuracy of cost estimates are highlighted to senior management, the Committee recommends that the Department exerts a more robust challenge, insists on independent validation of key cost estimates, and does not accept unsupported assertions from Translink.

Failure to reappraise

8. To compound this problem, it became clear at an early stage that the project would far exceed budget. In such circumstances, the Department should have reappraised the project and this would have given it an opportunity to reassess the options and to bring it back under proper control. The Department failed to do so and allowed the project to proceed. When the Department was asked to explain why the reappraisal did not take place, it acknowledged that it was a major failing that this did not occur, but could only speculate that the failure to reappraise was probably due to "a desire to make the project proceed." The Committee is of the opinion that the Department bowed to pressure from Translink and allowed an unsustainable project to proceed without the necessary reappraisal.

9. What is particularly worrying is that there is no documented evidence within the Department on this decision, and that the Accounting Officer told the Committee that he had to rely on speculation because a senior member of staff responsible for the project had retired in March 2004.

10. The Committee is critical of the record keeping procedures within Translink, despite the fact that it is an Arm’s Length Body. It is entirely unacceptable for poor record keeping, particularly on key investment decisions, to exist at the heart of a central Government Department. The Committee considers that, even where it is not formally on the record, the Accounting Officer has a personal responsibility to establish the reasons for the decision not to reappraise. The Committee pressed for a written explanation; the Accounting Officer replied in his letter of 15 June 2007 (Appendix 3) stating that "there is no record of a decision not to reappraise being formally taken. The minutes of the Monthly Monitoring Meeting on 20 July record that the Departmental Grade 7 officer advised that DFP would have to be clearly advised of the reasons for the increase in costs. However, there is no written record of this being followed up. The Accounting Officer would not have been aware of the need for reappraisal at this stage and it is assumed that the Grade 5 officer who chaired the meeting would have been the most senior member of the Department to have an understanding of the issue at that time. The post holder has since retired."

Gateway Review

11. The Treasury Officer of Accounts highlighted that, subsequent to this project, it had introduced the Gateway Review process, which all major projects must now go through, and that, had this been applied at the time, the outcome for this project would have been completely different. The Committee welcomes this development.

12. However, the Committee is concerned to note in the Accounting Officer’s letter of 15 June 2007 that Translink has not identified any projects as falling into the Gateway category since its introduction in October 2004. The schedule of projects over £1 million details that there are several in excess of £10 million and one planned in excess of £40 million (Appendix 3). Whilst Translink is applying its own review process to all projects, this is no substitute for an independent Gateway Review.

Recommendation 2

13. The Committee recommends that the C&AG review the implementation of the Gateway Review process in DRD and its sponsored bodies and report back to the Committee.

Post Project Evaluation

14. The economic appraisal had recommended that a post project evaluation should be carried out one year after completion to measure the extent to which the benefits had been achieved. Despite the multiple failings of the project, no post project evaluation had been carried out some five years after its completion.

15. In mitigation, the Department indicated that the reason for this delay was that the Currie and Brown project management review covered similar territory and the set of recommendations from that review had to be followed up. However, the project management review is not the same as a post project evaluation and the two are not mutually exclusive. There is no reason why the post project evaluation could not have been done simultaneously, or shortly after the Currie and Brown review. The Committee is concerned that even now, some 5 years after completion, the post project evaluation is still not "signed off".

Recommendation 3

16. The Committee recommends that, in future, all economic appraisals clearly stipulate the timescale for undertaking the associated post project evaluation, that these are undertaken promptly and that this is centrally monitored and the results disseminated by the Department. The Committee requests that the Treasury Officer of Accounts reissues guidance on this matter.

Oversight of Translink

17. This project has highlighted several worrying instances of poor procurement practice in terms of the absence of written contracts, a lack of competitive tendering and the extension of consultants’ contracts. The Committee asked the Department to explain why it had continued to give substantial amounts of public money to a body that disregarded basic public sector procurement practices and why, when it became aware of these practices, it did not intervene.

18. The Department replied that Translink is now accredited as a Centre of Procurement Excellence (COPE) by the Northern Ireland Procurement Board. To achieve and maintain that accreditation, it has to ensure its practices are up to date and of the requisite standard. The Department also highlighted that it has put in place a new Management Statement and Financial Memorandum and that other new arrangements have been developed – including Departmental representation on all large project boards, a significantly changed information flow, scrutiny of individual projects, improved performance monitoring and more robust investment appraisals.

19. The Committee is of the opinion that many of the new controls, such as procurement accreditation, represent basic, common sense practices which should have already been in place and is therefore not convinced that the previous governance arrangements represented best practice at that time and considered that the organisation obviously operated beyond normal public sector controls.

20. However, the Committee welcomes the procurement accreditation received by Translink and notes the Department’s view that this provides assurances for the future. The Committee is also pleased to note the introduction of new oversight arrangements and improved controls over the management of capital projects and it recognises the Department’s view that this represents a significant change in the intensity of management.

21. It is evident from this project, which has been described as a fiasco, that the Department had failed to do anything to assure itself that basic public sector procurement processes and procedures were in place in Translink before it provided funding for a multimillion pound capital programme. The Department itself has accepted that Translink had a lot of work to do to meet Centre of Procurement Excellence status. It is our view that this should be the expected standard for any public sector body such as Translink involved in major capital procurements.

Recommendation 4

22. The Committee recommends that the Department seeks further assurance that the new procedures introduced in Translink following the Currie and Brown report, are in place and operating effectively.

23. The Committee noted that the Accounting Officer has scheduled an Internal Audit Review for September. He stated "The review will consider all the arrangements that we have in place and whether they are fit for purpose in order to ensure that they allow relationships to operate as we wish them."

Recommendation 5

24. The Department should issue a copy of the Internal Audit Review report on the operation of its own new oversight controls to the Committee.

Source of Additional Funding

25. The Committee is concerned that other public transport projects such as the Larne or Derry lines may have lost out as a result of the overspend on this project. However there is no clear audit trail to indicate the source of the additional £19.2 million required to complete a project that was both late and not even up to the standard of the initial plan.

26. The Accounting Officer in his letter of 15 June 2007 stated "that the additional funding for Belfast-Bangor was met mainly from utilising underspends and in-year funding arising from slippage on other Translink projects such as the acquisition of new trains. This occurred over several years and was, in some cases, the result of deliberate decisions to rephase/reschedule other projects to help create the necessary headroom to meet the Belfast–Bangor costs. There was also a small amount – some £1.8 million – funded by NITHC from its own internal resources." He also said that "..there were no capital schemes within the Translink capital programme which were prevented from going ahead as a result of the additional funding required for Belfast–Bangor Relay."

27. The Committee has difficulty in understanding how surplus funding of this scale can be found purely from slippage and underspend in any well managed capital programme. This suggests poor financial planning within the programme and the Department’s explanation does not adequately clarify what the opportunity cost of their overspend really was.

28. This position is difficult to reconcile with the explanations given over many years to public representatives that rail funding for other schemes was unavailable, and to local perceptions that other schemes were delayed due to a lack of money because of the Belfast-Bangor project.

Recommendation 6

29. The Committee recommends that, where there are major capital overspends such as the Belfast-Bangor project, there is a need for greater budgetary transparency so that the public and elected representatives can more clearly identify from where the additional money is sourced, and what other projects are losing out as a consequence. The Committee further recommends that the Department of Finance and Personnel ensures that this is the case.

Conclusion

30. Overall, it is clear to the Committee that Translink operated at extreme arm’s length from the Department and that the public purse has paid the penalty for the lack of effective Departmental control and oversight. This is not just hands off management of an Arm’s Length Body. Instead, it looks like ‘hands off, eyes shut’. The Department’s failure to explain when it became aware of the poor procurement practices suggests that it did not know about the deficiencies, otherwise it would have required them to be addressed much earlier.

Recommendation 7

31. The Committee recommends that if there is no significant improvement in Translink’s and NITHCo’s performance the Department should undertake a fundamental review of the structures.

The Capability of Translink to Undertake Major Capital Investment Projects

32. The Committee fully accepts that Translink was badly served by its lead consultants, Maunsell Rail, on this project. Their failure to deliver track designs and to adequately specify the contract contributed significantly to the increased construction costs. Nevertheless, it is clear that this project was very badly planned by Translink from start to finish. Many of the subsequent problems could have been mitigated if it had in place basic management systems and had undertaken prompt action.

Contract Variation Procedure

33. There were serious omissions in the construction contract and a significant element of the overspend was due to additions and variations to this contract. However, Translink did not have a project change control process in place at this time and this made it difficult to control the cost increases arising from claims made by the contractor.

34. In the Committee’s view, the appalling lack of control of contract variations was akin to giving the contractor, Mowlem Rail, a blank cheque and Translink found itself in a position where it had to enter into a protracted settlement process with Mowlem Rail in order to reach agreement on the final costs.

Recommendation 8

35. The Committee never wants to see a case again where a major contract is entered into without a proper contract variation procedure in operation. The Committee would like the Department of Finance and Personnel to ensure that public bodies are alert to this.

Settlement Process

36. The Committee found that advice on the settlement process was offered to Translink from a number of different advisers at different times. Initially, its legal advisers, Arthur Cox, proposed offering Mowlem Rail a settlement of £16 million but this was ignored. NITHCo and Translink accepted that there was no documentation to explain why the advice was not taken. The Committee was told that, the proposal by Arthur Cox was merely to gauge the readiness to settle and what the settlement figure might be. At this stage, it did not have a firm idea of the correct and final contractual settlement because many issues remained up in the air. If this was indeed the case, it raises the question of why Translink would pay out public monies for what was therefore clearly a nugatory exercise.

37. Further advice on this issue was offered by Ferguson McIlveen. However it was unable to definitively assess the costs payable to Mowlem Rail and, in the event, Translink ultimately agreed a figure of £23m, a settlement which - witnesses conceded, and the Committee would fully agree - did not represent good value for money. Indeed, in reaching a settlement, more importance seems to have been given to ensuring that the contractor was adequately recompensed, than ensuring that the tax-payer received value for money.

Waiver of Right to Claim Damages

38. Translink decided to terminate Maunsell Rail’s appointment because of the lead consultant’s poor performance, and, in November 2001, signed a Termination Agreement. Despite the stated intention of management to recover damages from Maunsell Rail, there was no possibility of doing so because of the limitations associated with this Termination Agreement. The Committee was told that management did not understand or realise that Translink’s rights to claim damages had been given away.

39. The Committee noted that the role of Translink’s legal advisers (Arthur Cox) was to secure an agreed Termination Agreement in such a way that the rights of the organisation would be protected. The Committee asked Translink whether it had considered the possibility that its legal advisers were negligent in failing to protect its rights to claim for liability in order to recover the £13m loss to the public purse. Translink confirmed it had taken legal opinion to ascertain the quality of the advice it received from Arthur Cox and the view was that there was no reasonable basis to pursue them for negligent performance.

40. The Committee is puzzled regarding the evidence about the relationship between Translink and its legal advisers. It is extraordinary that the company’s legal advisers adopted an attitude of "if you are satisfied so are we" and that, on this basis, Translink as a client is content that it obtained adequate legal advice. The Committee also found it deplorable that there is no written evidence of advice given, or of the decision at management or NITHCo Board level to progress with the Termination Agreement as drafted at that stage.

41. The C&AG has estimated the extra cost at £8-£13m and yet the lead consultant was allowed to walk away without any liability. It is totally unsatisfactory that the public purse has to bear the cost for the failure of the consultants to meet their obligations. It is even worse when this occurs because Translink waived its legitimate rights to claim damages and there is a complete lack of audit trail to support the reasons for this decision.

Recommendation 9

42. The Committee recommends that the Department of Finance and Personnel makes it clear throughout the public sector that in future situations where a public body is terminating the appointment of a consultant in this way, it ensures that full rights of redress are retained and does not succumb to the expediency of washing its hands of a problem rather than effectively dealing with the issue.

Absence of Usable Design

43. The key reason given for entering into the Termination Agreement, and which resulted in the failure to protect Translink’s right to claim, was that track designs were urgently needed from Maunsell Rail and their subcontractors. The Committee was told that the Head of Infrastructure considered that the designs were capable of being salvaged, yet he subsequently told the C&AG he had never seen the designs.

44. The Committee pressed the NITHCo witness to explain the contradictions highlighted in the C&AG’s report in this regard. The witness was unable to explain this complete contradiction. The Committee finds this an untenable position for NITHCo. Even the smallest of businesses would have procedures in place where there would have been some documentation to illustrate that the designs had been reviewed, were of some worth and that payment was in order. These are basic, simple standards and yet seem not to have occurred in this case.

Recommendation 10

45. The Committee was told that Translink has improved its contract management and purchasing procedures. However, the Committee would like a specific explanation of how they propose to ensure that this kind of costly confusion cannot recur.

Rescoping of the Project

46. There was a significant rescoping of this project. This included the initial specification of the 90 mph speed limit being reduced to 70 mph; a partial rather than full relay of the track; a significant reduction in bridge works, drainage and sea defences; and no replacement of stockproof fencing. Despite this reduction in specification, there was still a significant overspend.

47. The Committee was told by Translink that the 90 mph speed limit was not part of the original appraisal, was only added to the specification in January 2001 then removed by March 2001 when it was recognised it could not practically be achieved, largely because of the topography of the line. Translink also told the Committee that the main bridgework identified in the economic appraisal and all the vital sea defence work had been carried out. It indicated that the reduced specification relay of the line was quite acceptable and fit for purpose for a lightly loaded passenger line of this nature. Translink assured the Committee that no substantive work on the Belfast to Bangor line is planned for the next twenty years and there should be no future passenger disruption.

48. If this is in fact the case, then the Committee finds this ample evidence that the project as it was originally tendered, was seriously over-specified and it is not surprising that it was found to be far in excess of the approved budget. Clearly the lower specified project in the investment appraisal, which appears to have been delivered (pending the post project evaluation), was fit for the purpose intended.

49. The Committee finds it hard to reconcile Translink’s assurances with the findings in the C&AG’s report. It is evident a significant volume of works was removed from the project when it became clear it was going to significantly exceed its budget and where it is stated that, owing to the scope reduction and partial track replacement, some of the track will have to be replaced earlier than expected.

50. There is a stark contradiction between the facts agreed and presented in the C&AG’s report, and the stance now being taken by Translink. The Committee was told in evidence that additional works were added to the project and the design speed of the line increased to 90 mph after the economic appraisal and that these were later removed to reduce the cost – a new set of information not volunteered during the C&AG’s investigation. This is an astonishing admission to a practice, which is clearly in breach of Departmental approvals and could lead to unauthorised if not irregular expenditure. This again demonstrates Translink’s almost contemptuous disregard for public sector safeguards.

Recommendation 11

51. The Committee recommends that future Departmental representatives on Translink project boards are alert to any recurrence of additional works being added to the project after the economic appraisal and that the Department of Finance and Personnel revisits the investment appraisal guidelines to ensure that this is absolutely clear.

The Absence of Proper
Records Management and
Ineffective Corporate Governance

Records Management System

52. It is a fundamental requirement of public accountability that proper records are kept of all investment decisions to show, in a transparent manner, how public money has been spent. This is the minimum that we as a Public Accounts Committee have a right to expect. However Translink’s documented record was the worst the Comptroller & Auditor General had ever seen. The Committee asked the Department and NITHCo what they intended to do to ensure that a proper records management system is put in place and that key management decisions are recorded.

53. The Department acknowledged that the records management system was not up to standard and that it had taken this criticism very seriously. It indicated that this issue had been dealt with in three ways. Firstly, a review led by the Chartered Institute of Public Finance and Accountancy (CIPFA) had examined how the NITHCo Board makes, documents and records its decisions; secondly, on the issue of procurement and contract management, the Department stated that Translink is now a Centre of Procurement excellence and is reaching the requisite standard for tracking and documenting projects; and, thirdly, on project management, the Department indicated that subsequent projects have been kept within budget.

54. While the Committee welcomes the position outlined by the Department, it is somewhat concerned that NITHCo subsequently indicated it is only in the "initial phase" of a programme to put in place proper records management and documents control, and that this will cost the public purse in the region of £1.8 million. Despite the Department’s earlier assurances, the NITHCo evidence suggests that only when this project is fully implemented, can it be confident that the issues of document control and retention will be fully addressed.

55. This is an alarming situation since an accurate record of public business is a fundamental requirement of accountability. The risks in failing to do this are clearly evidenced here, where key decisions were not recorded, proper records were not maintained and protected, and accountability has suffered accordingly. The Committee is surprised that, despite being aware of the C&AG’s concerns on records management for more than a year, NITHCo is still only at the initial phase and that the project should be so costly when such basic procedures should have been long embedded within all public sector bodies.

Recommendation 12

56. The Committee recommends that Translink establishes a formal action plan for this project with key milestones set to ensure that it is implemented without further delay and that progress is formally monitored and recorded at monthly review meetings with the Department.

57. Much of the difficulty with documentation in this case lies with a lack of systems. In addition, failure to record and retain information could suggest a culture of secrecy, which runs contrary to public sector standards. Full transparency and accountability will only be achieved in Translink when this culture has been changed.

Recommendation 13

58. The Committee recommends that in future, all management decisions are fully documented and comprehensive, clear and accurate minutes are maintained of all Board business.

Director of Corporate Affairs Retraction

59. The lack of documented record is one thing; attempting to alter that record is another entirely. The Committee was deeply disturbed by the attempt of the Director of Corporate Affairs to retract part of the public record relating to the information received by the Board on the Termination Agreement. This was set out in Appendix 4 of the C&AG’s report. Public bodies are required to have an authoritative, contemporaneous record of all matters relating to their use of resources. For part of the record to be retracted, particularly as this one was at a late stage in an NIAO investigation, is deplorable. This inevitably raises concerns that the record may have been originally distorted or is being subsequently manipulated. The Committee was also astonished that this letter of retraction was not sent through the Departmental Accounting Officer who should have the primary responsibility for determining how an issue as sensitive as this is handled. The C&AG has assured the Committee that retractions of this nature are very unusual and that, whenever he encounters one in the course of an NIAO investigation, he will draw it to the Committee’s attention. This is an important safeguard which will ensure that the Committee can subject any future cases to the very close scrutiny that they deserve.

Destruction of Records

60. The poor records management system within Translink was further compounded in this case because a former senior member of staff was able to go into Translink’s offices at the weekend, remove substantial numbers of files and destroy them. The Department acknowledged that this was an enormous concern and inevitably led to suspicions about fraud.

61. The Committee was told that NITHCo engaged with the police at an early stage, that the question of fraud was raised but that the police felt unable to pursue a fraud inquiry in the absence of compelling evidence. Consequently, the NITHCo internal inquiry was limited to the theft of documents. It was only after a significant lapse of time that, in December 2005, the Department commissioned a contracts expert to carry out a forensic audit of this issue.

62. The Committee welcomes the fact that a forensic audit was finally undertaken by the Department. The Committee noted that the forensic audit concluded that the Head of Infrastructure did not have the opportunity to be involved in fraudulent activities. The Committee would have expected the Department to have initiated an investigation of this nature at the outset, rather than almost 4 years after the event.

63. The Committee also noted the assertion that the police were unable to investigate fraud because of insufficient evidence. In the Committee’s view this emphasises that the onus was on Translink to provide sufficient prima facie evidence to the police and its failure to do so raises concerns about the focus of the PSNI inquiry. Translink should have tailored its own investigation specifically to address the possibility of fraud and impropriety. It should have done so by engaging relevant independent and specialist knowledge, for example through the Department’s Internal Audit.

Recommendation 14

64. To ensure that potential issues of fraud are addressed appropriately in future, the Committee recommends that the Department assures itself Translink has a Fraud Response Plan in place in line with those adopted by central Government Departments and that this plan is operating effectively.

Golden Handcuff

65. There were several instances of excessive generosity associated with the retirement of Translink’s Head of Infrastructure. He was paid a ‘golden handcuff’ of £28,500 and the Committee asked the Department how it could justify the use of public money to pay a bonus of this nature. The C&AG’s report noted that the bonus was paid to allow for the recruitment and handover to a successor, but that this was never achieved. In fact, this documented record was contradicted at the evidence session when NITHCo told the Committee that the payment was made because the Board felt that losing the Head of Infrastructure was a serious risk to the delivery of the project. The Committee was told that the reference to appointing a successor was a convenient, if misleading "strap line" in the minutes, referring to the imminent departure of a number of staff. Once again, the Committee is compelled to register its concerns at the cavalier treatment of the public record – this is totally unacceptable and represents a constant theme which has undermined the C&AG’s report and made the Committee’s evidence session more difficult.

66. The Committee is outraged by this payment, doubly so because Translink did not seek approval. This serves to emphasise the inadequacy of the control regime they were operating under.

Recommendation 15

67. In future, all exceptional payments of this kind to individuals anywhere in the public sector should require not just Departmental approval, but DFP approval. The Committee wants to see such payments made transparent in the accounts and would like the C&AG to draw these to the Committee’s attention as a matter of course.

Retirement Functions

68. The Head of Infrastructure was further sent off in fine style, benefiting from two retirement functions at golf clubs in Wicklow and Whitehead respectively, the former paid for using a company credit card. The Department agreed that this was totally unacceptable, condemned it and reassured the Committee that new arrangements would not allow this to happen. Despite the Department’s assurances the Committee was told, in the next breath, that Translink still pays for two or three retirement functions a year as a means of marking long service. The Committee is astonished that the Director of Corporate Affairs should still imagine that this is acceptable. The Committee feels compelled to emphasise the damage that expenditure of public funds in this manner does to the credibility of management.

Recommendation 16

69. The Committee understands that the normal practice within the public sector is that retirement functions for staff held in high standing are funded by donations from their colleagues. The Committee recommends that Translink and every other public sector body conforms to this practice.

Corporate Governance

70. Accepted standards of corporate governance were not embedded or operational within NITHCo. The Board did not carry out its duty to ensure that either the appropriate questions were asked or that this multimillion pound project, which was ultimately its responsibility, was properly managed. It seems that, throughout this project, everything in its entirety was delegated away from the NITHCo Board. It is not at all clear to the Committee how the Chairperson and six non executive directors, exercised their functions, despite receiving remuneration of £120,000 per annum. There is no evidence that they have informed themselves of important issues such as the waiving of Translink’s right to claim damages from Maunsell Rail, or sought the opportunity to advise on other aspects.

71. The Department recognised the validity of the criticism of the Board but noted that the new Chairperson had undertaken a detailed review, led by CIPFA, of the Board’s governance, internal audit and information flows. The Department indicated that the findings from this review were being implemented and the Department was now working on its relationship with the Board.

72. The Committee welcomes this review and the Department’s assurances on the new working relationships. The Committee is nevertheless concerned that NITHCo seems to consider that "it is entirely normal for detailed contractual issues to be delegated in their entirety to the executive management team" (Appendix 2). This is patently not acceptable in a case such as this where a major project had gone badly wrong and where the organisation faced severe financial, reputational and operational risks. The Committee cannot emphasise strongly enough that it is the role of members appointed to the Boards of Arm’s Length Bodies to provide oversight and challenge to the executive management.

Recommendation 17

73. Where highly respected individuals are prepared to give time to public boards, the Committee expects Accounting Officers to ensure that their contribution is effectively deployed. In this particular case however, the Committee insists on an assurance from the Chairperson of the Northern Ireland Transport Holding Company that her Board is completely satisfied that it currently receives all of the information relevant to its important oversight role.

Appendix 1

Minutes of Proceedings
of the Committee
Relating to the Report

Minutes of Proceedings
Thursday, 31 May 2007
Senate Chamber, Parliament Buildings

Present: Mr John O’Dowd (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Jonathan Craig
Mr John Dallat
Mr Simon Hamilton
Mr David Hilditch
Mr Trevor Lunn
Mr Patsy McGlone
Mr Mitchel McLaughlin
Ms Dawn Purvis

In Attendance: Mrs Cathie White (Assembly Clerk)
Mrs Gillian Lewis (Assistant Assembly Clerk)
Mrs Pauline Hunter (Clerical Supervisor)
Mr John Lunny (Clerical Officer)

Apologies: Mr Willie Clarke

The meeting opened at 2.00pm in public session.

3. Evidence on the NIAO Report ‘The Upgrade of the Belfast to Bangor Railway Line’.

The Committee took oral evidence on the NIAO report ‘The Upgrade of the Belfast to Bangor Railway Line’ from Mr Gerry McGinn, Accounting Officer, Department for Regional Development (DRD); Mr David Carson, Director of Public Transport Performance Division, DRD; Mr Jim Aiken, Northern Ireland Transport Holding Company; and Mr Clive Bradberry, Translink. The witnesses answered a number of questions put by the Committee.

2.04pm Mr McLaughlin joined the meeting.

2.45pm Mr Hilditch left the meeting.

The Committee requested that Mr McGinn should provide additional information on issues raised by members during the evidence session to the Clerk.

[EXTRACT]

Minutes of Proceedings
Thursday, 21 June 2007
Room 144, Parliament Buildings

Present: Mr John O’Dowd (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Jonathan Craig
Mr John Dallat
Mr Simon Hamilton
Mr David Hilditch
Mr Patsy McGlone
Mr Mitchel McLaughlin

In Attendance: Mrs Debbie Pritchard (Principal Clerk)
Mrs Cathie White (Assembly Clerk)
Mrs Gillian Lewis (Assistant Assembly Clerk)
Mrs Pauline Hunter (Clerical Supervisor)
Mr John Lunny (Clerical Officer)

Apologies: Mr Willie Clarke
Ms Dawn Purvis

The meeting opened at 2.03pm in public session.

2.24pm The meeting went into closed session.

6. Consideration of Draft Committee Report ‘The Upgrade of the Belfast to Bangor Railway Line’

Members considered the draft report paragraph by paragraph. The witnesses attending were Mr John Dowdall, C&AG, Mr Eddie Bradley, Director of Value for Money, and Mr Paul Craig, Audit Manager.

The Committee considered the main body of the report.

Paragraph 1 read and agreed.

3.31pm Mr Hilditch left the meeting.

Paragraphs 2 – 8 read and agreed.

Paragraphs 9 and 10 read, amended and agreed.

Paragraphs 11 – 17 read and agreed.

Paragraph 18 read, amended and agreed.

Paragraph 19 read and agreed.

Paragraph 20 read, amended and agreed.

Paragraphs 22 – 25 read and agreed.

3.40pm Mr McGlone left the meeting.

Paragraph 26 read, amended and agreed.

Paragraph 27 read and agreed.

Paragraph 28 read, amended and agreed.

Paragraph 29 read and agreed.

Paragraph 30 read, amended and agreed.

Paragraphs 31 and 32 read and agreed.

Paragraph 33 read, amended and agreed.

Paragraphs 34 – 36 read and agreed.

3.58pm Mr Dallat left the meeting.

Paragraphs 37 – 38 read and agreed.

Paragraph 39 read, amended and agreed.

Paragraph 40 read and agreed.

4.00pm Mr Dallat rejoined the meeting.

Paragraphs 41 – 44 read, amended and agreed.

Paragraphs 45 – 48 read and agreed.

Paragraph 49 read, amended and agreed.

Paragraph 50 read and agreed.

Paragraph 51 read, amended and agreed.

Paragraphs 52 – 54 read and agreed.

Paragraph 55 read, amended and agreed.

4.20pm Mr Dallat left the meeting.

Paragraph 56 read, amended and agreed.

Paragraphs 57 – 63 read and agreed.

Paragraph 64 read, amended and agreed.

4.25pm Mr Dallat rejoined the meeting.

Paragraph 65 read and agreed.

Paragraph 66 read, amended and agreed.

Paragraphs 67 and 68 read and agreed.

Paragraph 69 read, amended and agreed.

Paragraphs 70 and 71 read and agreed.

4.35pm Mr Beggs left the meeting.

Paragraph 72 read, amended and agreed.

The Committee considered the Executive Summary of the report.

Paragraphs 1 – 4 read and agreed.

Paragraphs 5 – 7 read, amended and agreed.

Paragraph 8 read and agreed.

Paragraphs 9 - 11 read, amended and agreed.

Paragraphs 12 – 16 read and agreed.

Paragraph 17 read, amended and agreed.

Agreed: Members ordered the report to be printed and agreed that the Chairperson would agree the final draft of the Committee’s report.

Agreed: Members agreed that the Clerk’s letters to Mr Gerry McGinn asking for additional written information and Mr McGinn’s reply would be included in the Committee’s report, together with a list of projects costing over £1million; the remaining papers will be laid in the Assembly library.

Agreed: Members agreed that the Chairperson would agree the Minutes of Proceedings to allow an extract to be included in the Committee’s report.

Agreed: Members agreed to embargo the report until 12 noon on Thursday, 5 July 2007, when the report would be officially released at a press conference.

Agreed: Members agreed to consider who should be invited to the press conference and who should receive a pre-released copy of the report.

[EXTRACT]

Appendix 2

Minutes of Evidence

Thursday 31 May 2007

Members present for all or part of the proceedings:
Mr John O’Dowd (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Jonathan Craig
Mr John Dallat
Mr Simon Hamilton
Mr David Hilditch
Mr Trevor Lunn
Mr Patsy McGlone
Mr Mitchel McLaughlin
Ms Dawn Purvis

Witnesses:

Mr Gerry McGinn Mr David Carson	Department for Regional Development
Mr Jim Aiken	Northern Ireland Transport Holding Company
Mr Clive Bradberry	Translink
Mr John Dowdall	Comptroller and Auditor General
Mr David Thomson	Department of Finance and Personnel

The Chairperson (Mr O’Dowd): Welcome to the first public meeting of the Public Accounts Committee (PAC) in the Senate Chamber. Please turn off mobile phones; do not switch them to silent mode, because they will still interfere with Hansard’s recording system. The Hansard report is invaluable to the Committee — never mind anyone else — because we will examine it next week, particularly the questions and answers, to aid the Committee in drawing up its report.

This meeting will be broadcast on the Assembly website, so we are on the World Wide Web. I remind everyone to watch their Ps and Qs, or any other letters of the alphabet that they might wish to utter.

I have received one apology from Willie Clarke, who is unable to attend the meeting.

We shall be discussing the Comptroller and Auditor General’s report on the upgrade of the Belfast to Bangor railway line. I welcome Mr Gerry McGinn, permanent secretary of the Department for Regional Development (DRD). Mr McGinn will introduce his colleagues and tell us about their areas of responsibility.

Mr Gerry McGinn (Department for Regional Development): David Carson is the director of the public transport performance division. He has overseen the significant changes in the governance arrangements between DRD and the Northern Ireland Transport Holding Company (NITHCo)/Translink. He has played a key part in putting in place the management statement and financial memorandum that encapsulates those arrangements.

Jim Aiken is the director of corporate affairs for NITHCo — the parent company of Translink — and he is the only executive director on NITHCo’s board. Clive Bradberry is the head of infrastructure at Translink. He is also a member of Translink’s senior executive team and is responsible for its infrastructure.

The Chairperson: The meeting will consist of a few opening remarks and questions from me, followed by a question-and-answer session. As I am sure our witnesses will appreciate, Committee members have a substantial number of questions, so this session may take quite a long time. However, it is in everyone’s interest that we garner as much information as possible so that we consider the information, write our report, come back with our findings, and move on.

Some wise words were offered to me when I accepted the position of Chairperson of the PAC. A colleague told me that PAC proceedings are not a blood sport. I hope that, at the end of this meeting, the witnesses will agree. Our purpose is to ensure that public finances are spent wisely and properly, because those finances are limited.

We are here not only to criticise but to highlight good examples of how to make progress. We hope that we will be able to use the Northern Ireland Audit Office (NIAO) report to do that.

I am disappointed that neither the chief executive of the holding company nor the chief executive of Translink is here today to answer questions. Perhaps Mr McGinn can explain that.

Mr McGinn: I have outlined the responsibilities of the four witnesses. Mr Aiken is the only executive director of Northern Ireland Transport Holding Company, so he is the most senior executive representative. My colleague Mr Carson and I are from DRD, Mr Aiken is from NITHCo and Mr Bradberry is an expert on infrastructure. I hope that the panel will give the Committee the opportunity to cover a range of important areas.

The Chairperson: Let us hope so.

It is a fundamental requirement of public accountability that proper records are kept of all investment decisions to clearly show how public money has been spent. However, we are told on page 29 of the Comptroller and Auditor General’s report that Translink’s documented record was "the worst" that he had ever seen. What do you intend to do to ensure that a proper system of records management is put in place and that key management decisions are recorded? That is surely the minimum that the public have a right to expect.

Mr McGinn: I want to acknowledge something right at the outset: we have all taken the criticism in that paragraph of the report very seriously, and we respect the judgement of the Comptroller and Auditor General on the records management system. We acknowledge that the system was not up to the standard that it had to be.

That leads to the question of what has been done to address the issues that have arisen from the report. We have dealt with the issues in three ways. First, the board of NITHCo has undertaken a review, which was led by the Chartered Institute of Public Finance and Accountancy (CIPFA). The review considered how the board makes, documents and records its decisions and follows them through.

Secondly, on the issue of procurement and contract management, Translink is now a Centre of Procurement Excellence and has reached a standard for tracking and documenting projects set by the Central Procurement Directorate. Thirdly, on overall project management, it is important to highlight what is working today. For example, subsequent projects such as the Bleach Green to Whitehead line have been kept within budget. That was a substantial project of £25 million.

It is important to acknowledge the criticism but also to acknowledge what has been done since. What has been put in place is working.

The Chairperson: If the management practices are put in place to ensure that records are kept, how do you ensure that they are not destroyed, as happened in this case and highlighted in paragraph 3.9 of the report? It is alarming that a senior member of staff was able to go into Translink’s offices at the weekend, carry out bin bags of files, and destroy them.

Mr McGinn: The fact that that happened has caused enormous concern to us all. It has inevitably led to suspicion. There is an issue about the way in which records are managed in the organisation, and Mr Aiken will say something about that. Records management and records security have to be considered. The key point for the future is that what happened cannot happen again.

Mr Jim Aiken (Northern Ireland Transport Holding Company): We are in the initial phase of a comprehensive programme to put in place proper records management and document control. The policy has been agreed with the board of NITHCo, and we have scoped the workload involved. It is a fairly major project that will cost in the region of £1·8 million over two years. When the project is fully implemented, we are confident that issues of document control and retention will be fully addressed.

Mr Hilditch: This is a serious report from cover to cover. Paragraph 2.1 states that the economic appraisals seriously underestimated the cost of the project. DRD’s own economists warned you about that, and the Department of Finance and Personnel pointed out that there was a pattern of overspends in Translink projects. Why were those warnings ignored?

Mr McGinn: Considering the project in its entirety, the initial scoping was one of the fundamental flaws, as you rightly point out. Looking at the timeline, it affected everything that followed. Translink employed consultants who supported the original budgeted sum, and the Department accepted those reassurances.

It is important to note that, at that time, Translink had brought other projects in on time and within budget; for example, the cross-harbour rail link — a substantial project costing £31 million. The Department felt that it was safe to accept the reassurance of an independent consultant. On re-examination, there were major failings in the timing of the scoping, which was originally carried out in 1998-99, and construction inflation played a part in inflating the sums of money that were involved.

Mr Hilditch: To compound the warnings about the economic appraisals, it became clear at an early stage that the project would far exceed budget. You had the opportunity to reappraise the project, assess the options and bring it back under proper control, yet you allowed it to proceed. How can you justify that decision, particularly in light of the Comptroller and Auditor General’s statement that:

"neither the risk of losing EU grant, nor the level of sunk costs"

were valid reasons?

Mr McGinn: I totally accept that point. Given the projected escalation, reassessment ought to have taken place at that time. It is important to acknowledge that, and it has been a lesson learnt. One recent example where a reassessment took place because of the projected escalation is the Fortwilliam train-cleaning facility project, which cost £11 million. It is important to reassure the Committee that the lesson has been learnt. However, a reassessment of the upgrade undoubtedly ought to have taken place at the time.

Mr Hilditch: As a newly devolved Administration, we should be aiming to improve the rolling stock, rather than considering a report that makes the Department, the company and Translink look like a laughing stock.

Mr McLaughlin: I apologise for being slightly delayed; I was across town.

Paragraph 2.23 of the report states that Translink’s legal advisers, Arthur Cox, advised it that it should reserve its right to claim. What advice did Arthur Cox give Translink on the critical clause D(ii), and why was it not documented?

Mr McGinn: Failings in relation to documentation, which the Chairman mentioned at the outset of the meeting, pervade the report, and the company has taken significant steps to address that.

Mr Aiken will comment on paragraph 2.23 of the report. There are two factors in play: first, the contract with Mowlem Railways, and trying to ensure that that proceeded; and secondly, the untold problems from the outset with Maunsell. There was a lot of legal discussion on paragraph 2.23, and Mr Aiken may be able to illuminate you on that.

Mr Aiken: It might be helpful to outline the context of Arthur Cox’s role in this matter. Arthur Cox was initially approached by Translink with a view to sacking Maunsell Rail. The very strong legal advice was that arbitrarily sacking the lead consultant was not a very smart thing to do commercially, nor would it solve the problem of discontinuing an association that clearly was not working at that time. Therefore, Arthur Cox’s role, from the point of view of management and the board, was to secure an agreed termination in such a way that the rights of the organisation would be protected. That objective was set out clearly from the beginning.

Clause D(ii), which has been already mentioned, turned out to be pivotal in that, far from securing and protecting the rights of the organisation, if anything, it compromised them. There is conflicting evidence as to exactly when clause D(ii) was introduced and the extent to which the importance of it was fully understood by management.

Arthur Cox is still of the view that it highlighted the risks associated with that clause. However, some of the then management took a contrary view and believed that the company’s rights had been protected.

Mr McLaughlin: Given the nature of the project and the huge problems associated with it, has Translink considered the possibility that its legal advisers were negligent in due diligence by failing to protect its right to claim? Has Translink explored the possibility of taking further advice on whether it can make a claim for liability in order to recover the £13 million that was lost from the public purse?

Mr Aiken: Translink took subsequent legal advice in an effort to ascertain the extent, or the quality, of the advice received from Arthur Cox. The view stated in that advice was that, although there were a number of failings in the advice from Arthur Cox, there was not sufficient basis to allow the company to pursue Arthur Cox for negligent performance. It was felt that Arthur Cox could have done more to highlight the risks associated with clause D(ii).

It is a question of how the matter is considered. Arthur Cox would argue that it pointed out the importance of the clause and that it asked Translink’s management whether it was content with it. The management — by both direct answer and by inference — clearly said that it was content. On the other hand, there is the view that Arthur Cox could have done more to highlight the critical nature of that clause and its potential impact on subsequent claims. Therefore, the answer is yes; Translink did take subsequent legal advice and, aside from the comments that I have just made, there was no reasonable basis to pursue Arthur Cox for non-performance.

The opportunity to pursue Maunsell Rail for the £13 million perceived or potential loss is a secondary issue, which I am sure will be raised later. There is a question as to what extent it would have been possible, given the nature of the termination agreement, to pursue Maunsell Rail for recovery of costs. There is a very serious question about how realistic that would have been in practice.

Mr Beggs: It is clear that the exercise was very badly planned from start to finish. It is obvious from reading paragraphs 2.10 to 2.13 of the Comptroller and Auditor General’s report that Translink was not well served by its consultants, Maunsell Rail. In February 2002, Mowlem Railways was eventually instructed that the existing track alignment should be followed. Contractors had been on site for some seven months before there were instructions. After 39 weeks of delay, there was a claim for £14·6 million. That is atrocious. Would anyone organise the building of their own house in such a way that builders would be on site without instructions? It is unbelievable.

In the absence of basic management systems within Translink, the consequences of Maunsell’s failures were much worse than they might otherwise have been. Do you accept that prompt action by Translink could have avoided or mitigated many of the problems?

Mr McGinn: The problems are well documented in the report. As you said, there were problems right from the off. A proper process was used to select Maunsell, but even from the beginning there were issues with the use of six subcontractors and the project management that they were expected to provide. That meant that a lot of Translink’s management effort in the early months of 2001 and beyond was absorbed into managing its relationship with Maunsell. For example, there were 18 meetings and 35 letters throughout an intense period of activity, but the project had not got off to a good start.

Mr Bradberry shall comment on the management of the contract and the delays. Much of the difficulty goes back to those early months of 2001 and the way in which Maunsell set about its task.

Mr Clive Bradberry (Translink): Mowlem Railways first lifted the track in the middle of October 2001 in order to set out the new alignment. It was during that construction period that we realised that the designs were not working. At that point our on-site team instructed the contractor to replace the alignment like for like while a decision was made about what would be done in the future. The contractor was not held up at that point; he was returning the rail line like for like.

Between October/November and Christmas, the designers were brought onto the site to try to sort out the problem, but after Christmas it became apparent that they could not solve the problems posed by their designs. The final decision was made in February to replace the tracks like for like, and work continued between November and February.

Mr Beggs: You seem to be saying that the problem was with Maunsell and how the company set about its task. Do you not accept that there were huge problems with the terms of the contract between Translink and Maunsell? The Comptroller and Auditor General’s report revealed some serious omissions in the contract with regard to Translink’s role in supervising Maunsell’s work and authorising payments to that company.

There is an indication at figure five on page 14 of the report that a significant element of the overspend was due to additions and variations to the contract. Paragraph 2.15 of the report seems to suggest that Translink had no effective procedures for approving additions and variations. Was the lack of proper contractual control of variations not akin to giving Maunsell a blank cheque? Do you not accept that, without an agreed price, for example, for additional metres of drainage, or an additional cubic metre of stones, or for excavation, you had given Maunsell a blank cheque?

Mr Bradberry: I accept that we did not have a project change control process in place at that time. We had a variation procedure at construction level — at contract level. The problems caused by the payments for the additional work arose because of omissions by Maunsell in the bills of quantities.

When Maunsell put together the bills of quantities for the scope of the project, it missed out a large number of items of work that needed to be carried out. In order for the contractor to be paid for those items, it had to submit additional work claims, which were considered by our on-site team. We are not talking about additional work here; we are talking about work that was missed from the original bills of quantities.

Mr Beggs: Do you accept that Translink missed the £2·5 million cost for the material that had to be excavated as stated in the contract? Was that not an omission on your part?

Mr Bradberry: We have to accept that we did not pick that up during the review of the bills of quantities submitted by Maunsell. However, our consultants put those detailed documents together.

Mr Dallat: Mr Chairman, I agree with your opening remarks that the Public Accounts Committee is not here to engage in a blood sport. I sympathise with the accounting officer, who was not responsible for the events of the period in question. For the record, can you tell us who was responsible?

Mr McGinn: The timeline in the report goes back to 1998, and several accounting officers have occupied the post since then. I am the accounting officer, for my sins, and the convention is that I account for both the present and the past.

Mr Dallat: That convention means that we will not be able to speak to the people who were responsible for the period that we are investigating. Does the Comptroller and Auditor General have a view on that?

Mr John Dowdall (Comptroller and Auditor General): Mr McGinn’s statement of the position is correct. As permanent secretary, he has all the information and should be able to answer for his predecessors. On the other hand, Mr Dallat, you are entitled to know the names of his predecessors. That is a matter for the record.

Mr McGinn: For the record, the timeline goes back to 1998, as the Committee saw. Ronnie Spence was permanent secretary until July 2001; Nigel Hamilton held the post from July 2001 to October 2002; Stephen Quinn held it from October 2002 to December 2005; and I took over in January 2006.

Mr Dallat: Thank you. Unsurprisingly, there were a few retirements following this fiasco. According to paragraph 3.20 and 3.21 of the report, golf was a high priority. On one occasion, the head of infrastructure seems to been sent off in great style to no less a place than Powerscourt Golf Club in County Wicklow with an American Express credit card. He spent £515, which NITHCo paid out. Can you explain that?

Mr McGinn: That is totally unacceptable. I cannot explain it, other than to condemn it and reassure the Committee that the new management statement and financial memorandum, which establishes the nature of the relationship between the Department and NITHCo/Translink, is a much more extensive document, which covers areas such as use of credit cards. Mr Aiken can confirm that a set of new procedures has been put in place within NITHCo/Translink that will deal with such issues. I totally understand the Committee’s anger and concern that the incident happened.

Mr Dallat: I would like to accept that explanation, and I normally would. However, some time ago the Public Accounts Committee, in conjunction with the Audit Office, went to enormous lengths to draw up standards for the use of credit cards. It seems that the Department totally ignored them.

Mr McGinn: First, DRD has no credit cards. Secondly, NITHCo/Translink has six, which are used for certain purposes under strict control. Mr Aiken will be happy to elaborate on that.

Mr Aiken: Mr Barnett’s credit card was a legacy from when he was a senior executive in the old Northern Ireland Railways (NIR). The continued use of that credit card was unacceptable. I can reassure the Committee that there are four credit cards currently in use in Translink: one is used by Northern Ireland Travel; one is used by Ulsterbus Tours; and the purchasing department holds the remaining two. None of those credit cards is for personal use whatsoever, and none leaves the premises.

The Northern Ireland Transport Holding Company, the parent company, has two credit cards, only one of which is in use, and that is used by the chairman. More importantly, any expenditure incurred on those credit cards is, by necessity, purely for travel and subsistence. They are used primarily in situations where no other payment method is available, such as booking flights on EasyJet, which does not have account facilities. There are stringent procedures in place to ensure that such expenditure on credit cards is properly approved.

Mr Dallat: Even if we accept that the credit card incident was some kind of anomaly from a previous practice, what about the cheque for £625 spent on another nosh-up at Whitehead Golf Club? How do you explain that?

Mr McGinn: First, that should not have happened. Secondly, the procedures ought not to have allowed it to be paid. The procedures that are now in place and the processes between the Department and the company — and equally importantly within the company itself — would not allow that to happen in that way again. That is my understanding.

Mr Aiken: All I can say is that there has been a practice of paying for retirement lunches for long-serving employees. We continue that practice for staff members who have worked for the organisation for 30 or 40 years. There are two or three such functions a year, which are valued and considered to be important as a means of rewarding staff for long service.

There have only been two or three retirements at executive level. I would like to think that the standards of probity that are applied now are much more rigorous than was clearly the case in 2001-02.

Mr McGinn: Mr Dallat mentioned the fact that there was no supporting documentation or no evidence of approval. The manner in which documents are signed off is critical. Proper processes should be in place and should be observed, which is the case now.

Mr Dallat: The entire situation worries me greatly. In the great train robbery of 1963, £2·3 million went missing, for which the people involved received a total of 300 years in jail. There is a £20 million deficit in this case, and not only have there been no penalties but retirement functions were paid for with company credit cards or company cheques. Do you understand why people such as me, from the west of the Province, where we cannot get money to upgrade the Belfast to Derry railway line, are livid about the situation?

Mr McGinn: Wherever a person lives, it is not acceptable. Procedures are now in place to ensure that nothing takes place without proper approval.

Mr Dallat: We have received explanations about the money, but what about working hours? Translink employees skived off on working days to unofficial retirement functions that were paid for by company credit cards or company cheques. Given that the travelling public are often frustrated by the lack of support at railway stations, what were those people doing at Powerscourt Golf Club or Whitehead Golf Club when they should have been at their place of work?

Mr McGinn: Mr Aiken will elaborate on the subject of working hours. If people are taking time off work, it should be properly documented. As we have said, such incidents should not have happened. Translink staff work a 37-hour week, with many staff finishing at lunchtime on Fridays.

Mr Aiken: I have two points to make. First, on the specific issue of the retirement functions, a small — but probably not acceptable — defence is that part of the events were held during hours when staff were not meant to be at work, because of the early finishing time on Fridays. However, in no way does that defend the fact that they were enjoying hospitality during the working day. They should not have been doing so.

Secondly, it is my belief that any subsequent retirement events would be held at a time that will not encroach on the working day. Where retirement lunches are organised for long-serving staff, managers expect staff to be back at their place of work by about 2.30 pm. Any other events should be held in the evening.

Mr Lunn: With apologies to Mitchel, I want to return to an issue that he raised at the start of the meeting concerning paragraphs 2.21 and 2.22 in the report. Despite the stated intention to recover damages from Maunsell, there was no possibility of doing so because of the limitations of the termination agreement. Did Translink know about those limitations when the agreement was signed?

Mr McGinn: Do you mean the termination agreement or the original contract?

Mr Lunn: I am referring to the termination agreement. Clause D(ii) confirmed that there was no possibility of action being taken against Maunsell for:

"negligent errors and / or defects in the design of the project not known to Translink".

Mr Aiken: All the evidence suggests that, when the termination agreement was signed in November 2001, management did not understand, or realise, that Translink’s rights had been substantively given away. As late as March 2003, when we had received a second piece of legal advice, the then managing director was of the view that rights of recovery were still intact and that there was still an opportunity, once all claims with Mowlem had been settled, to pursue Maunsell, and/or others.

The compelling evidence is that, in late 2002, it was already pretty clear that our hopes had not been well founded. However, at the time when the termination agreement was signed, management did not realise that Translink’s rights had been substantially compromised, or, indeed, given away. Therefore the answer to your question is no.

The subtlety of clause D(ii) was not apparent to anyone until subsequent further legal advice had been received. The clause stated that two conditions had to be in place before a claim could be substantiated. The first condition was that the circumstances must be such that they were not known at the date of the termination agreement. In other words, the agreement wiped the slate clean, and any known problems up to the date of the agreement’s being signed could not be used as the basis for a subsequent claim.

The second condition was that rectification of work was necessary. Therefore, in order to substantiate a claim, the railway would have had to have been built up the side of the embankment in order to rectify it. Those two elements of clause D(ii) were restrictive, and, as such, were a serious impediment to any possible legal redress.

Mr Lunn: Normally, when a firm is to be sacked on incompetence grounds, it would be unusual to sign away one’s rights to take action against that firm. I do not have a legal background, but the extract from clause D(ii) quoted in paragraph 2.22 of the NIAO report does not appear all that complicated. It lets Maunsell Rail off the hook completely, even though the firm was incompetent.

Maunsell Rail does not appear to have delivered on any aspect of its remit. It seems that the company was directly responsible for £8 million to £15 million of extra expense. Maunsell Rail was allowed to walk away without any liability, and, apparently, against legal advice. We need to return to that point, because someone should be carrying the can.

Moreover, the company was paid for work that it had done, even though that work had delayed matters instead of moving them on. It seems that questions were being asked about Maunsell one month after its appointment. If the company were so incompetent, how was it ever awarded the contract?

I am also concerned about the tendering process. It was said earlier that Maunsell Rail came out on top in a proper competitive-tendering process. That begs the question: what was the competition like?

I apologise for going over old ground, but I cannot understand how senior management could look at the situation and decide that the approach would be to wipe the slate clean and let Maunsell Rail walk away. The company was professionally negligent. I am sure that it had insurance cover, but, nevertheless, the rights to deal with the situation properly were signed away.

Mr McGinn: I will make a couple of points, to which Mr Aiken will add. Paragraph 3.6 in the NIAO report is also relevant to the current discussion.

There are several elements to Mr Lunn’s question. He asked whether Maunsell was properly selected and appointed. I have completed some work that would confirm that that was the case.

Undoubtedly, there were a series of problems from the start. Paragraph 3.6 of the report states:

"Translink could adequately demonstrate that Maunsell were in breach of their obligations".

When it came to negotiations with Maunsell Rail, the legal situation was complex. The prospect of parties suing and counter-suing each other was readily coming to the fore. That is the complex side to negotiations.

Mr Aiken: The documentation suggests that a very clear and open tendering process took place. As a result, Maunsell Rail was the preferred bidder for the work, not only because of its level of professional competence but because of its proposed working method.

That working method involved leaving the railway line open, with night-time possession, whereby we could try to maintain train services while undertaking a complex engineering project. That was accepted as the preferred option for reasons of cost and because it would protect the passenger base. At the time of appointment, therefore, there was no concern at management or board level that the right consultants had been appointed.

It is correct to point out that difficulties with Maunsell Rail were encountered as early as February and March 2001. Management made all reasonable efforts to try to bring the situation under control, which included holding a meeting with Maunsell on 11 June 2001 at which the then managing director demanded of the head of the company’s European branch that shortcomings in performance be addressed. He was given assurances at that stage that Maunsell Rail would improve performance, and a so-called recovery strategy was agreed between the two parties.

At the beginning of the summer of 2001, the belief and hope of the management was that Maunsell Rail would start to deliver on the services for which it had been contracted. It did not take long for the management to realise that the promises that had been made were not being delivered on. In September 2001, the then managing director and his team concluded that the arrangement was not going to work and that alternative steps must be taken.

By the summer of 2001, the first payment of £154,000 to Maunsell Rail had already been made for services that had been provided — albeit less than perfect services. The remaining payment to Maunsell, which was a lump sum payable on termination, was £200,000. That was paid primarily to secure the novation of the subcontractors, who had not been paid. We did not pay Maunsell from the summer of 2001 onwards, but I take the point that to have paid them anything appears highly unsatisfactory.

My final point concerns the decision to terminate Maunsell’s involvement. Arthur Cox, the company’s legal advisers, pointed out that, notwithstanding the abject failure of Maunsell’s performance, it had contractual rights — there are always two parties to a contract. Therefore, in entering into the arrangements to terminate that agreement, Translink had to be mindful of the fact that an attempt to sack Maunsell Rail would have resulted in a counterclaim, and we would have been before the High Court in a matter of days. The entire project would have ground to a complete halt, although, with hindsight, that might have been a good thing.

Mr Lunn: I entirely agree with you that that might have been a cheaper route to take. I do not understand the relationship between Arthur Cox and Translink. Solicitors will, generally, provide firm advice, particularly on something as important as the matter at hand. They do not normally ask customers whether a matter is OK with them, which is the implication in the report. I find that attitude of

"If you are satisfied, so are we"

to be absolutely ridiculous.

Arthur Cox either advised Translink not to waive its rights or that it was OK to do so. I cannot accept that — with up to £15 million involved — Arthur Cox would have been anything but definite. There seems to be a lack of documentation because much of it has been lost. Are you satisfied by the legal advice that was provided by Arthur Cox? Is there clear documentation, or is it woolly?

Mr Aiken: The NIAO highlighted the fact that either there appeared to be gaps in the evidence or that there was a distinct lack of explanation as to why the original aspiration, which was to protect Translink’s interests in termination, became a situation in which we had given away our rights. I cannot answer that question because I cannot speak for the legal advisers.

Mr Lunn: If one is dissatisfied with someone’s performance, the last thing that one does is to give away the right to take action.

The Chairperson: This is not a case of the evidence being woolly but a case of its being burned.

Mr Lunn: That evidence may still be in Arthur Cox’s office. Solicitors do not so much as throw out toilet paper — the documents must be there somewhere.

Ms Purvis: I refer to paragraph 2.33, which concerns the reduction in the project’s scope. Owing to that reduction and a partial track replacement, some of that track will have to be replaced earlier than expected, and work will need to be done on bridges and sea defences. Given that there has already been major disruption to passengers and a dent in public confidence in the service, can you tell me what further investment is needed on that track and what further passenger disruption will be caused?

Mr McGinn: Of the four of us, Mr Bradberry knows that track best, so I shall ask him to answer that question.

Mr Bradberry: The method by which the costs were reduced from the original contract was to use a reduced-scope relay of the track. From the work that had been carried out, after the appointment of Maunsell Rail, when trial holes had been dug to ascertain the condition of the ballast, it became apparent that certain sections of the ballast from about Carnalea to Bridge End were not in as poor condition as elsewhere on the line. When we had to consider how savings could be made, it was realised that we could carry out a reduced-specification relay. That would be quite acceptable and fit for purpose for that type of line, which is quite lightly loaded. We do not run freight on the Belfast to Bangor line. Our passenger services are quite light-loading for a railway line.

That means that all the rail skeleton is still removed. The ballast that is there is spread because the top ballast is in good condition. Once the ballast had been spread, we relaid the track skeleton — all the rail was replaced and all sleepers were sorted, and those that were broken or worn were replaced. The new track skeleton was put in place to a closer sleeper spacing so that it would be stronger, and completely fresh ballast was put all over the top. The track was then tamped and aligned. The estimate of 10 to 15 years’ life expectancy for the track is very pessimistic. My corporate plan does not plan for any substantive works on the Belfast to Bangor line for the next 20 years.

The line has been operating now for five years and has been running perfectly acceptably. We may have to carry out some additional maintenance work in future, but those should not disrupt the line. The main bridgework identified in the economic appraisal was all carried out. A number of additional works was originally put into the specification to take advantage of the line’s being closed — those were maintenance items such as the minor repair and repainting of bridges. These were the items that were stripped out of the main operation, but such small works can be done without closing down the line. Similarly the vital sea-defence work has been carried out. Tasks remain that we are happy to monitor, and we will carry them out in future without closing the line.

Ms Purvis: For clarification, do you believe that no further major investment will be needed in the next 10 to 20 years?

Mr Bradberry: Our current view is that we will not replace that line in the next 20 years.

Mr Hamilton: I draw your attention to paragraph 3.24 of ‘The Upgrade of the Belfast to Bangor Railway Line’ report, in which I see that the NITHCo board was paid a total of £120,000 a year. Mr Aiken, as director of corporate affairs of the holding company, is quoted in paragraph 3.27 of the report as saying:

"it is entirely normal for detailed contractual issues to be delegated in their entirety".

It seems that, throughout this project, everything in its entirety was delegated away from the holding company board. For what expertise were the chairman and six non-executive directors on the board, who were brought in from outside, getting paid £120,000 a year? They failed to identify important issues such as the waiving of the right to claim, and they were not giving advice on other issues. What were they there to do if not something as fundamental as that?

Mr McGinn: Although I recognise the validity of the criticism in the report, it is critical for the organisation’s effectiveness that the holding company board works efficiently. The new chairperson undertook a detailed review, led by CIPFA, which looked at the board, its governance and its internal audit. The review asked questions about the conduct of business, information flows, and so on. That detailed piece of work is now being implemented, and I attended one of the board’s working sessions about a year ago to get the reviews findings up and running.

Although I recognise the criticism, I can assure the Committee that experts have conducted a thorough review of what needs to be done. Those processes are now working in the relationship between DRD and the NITHCo board. We have set up a mechanism between the board and the Department. Accountability reviews take place at the highest level. My colleague David Carson holds the monthly monitoring meetings, and the information flows for those have been significantly enhanced to ensure that linkage takes place. The criticism is valid, but action has been taken to deal with it.

Mr David Carson (Department for Regional Development): The management statement and financial memorandum that we have in place is explicit about the board’s corporate responsibilities and how it should exercise them.

Mr McGlone: Paragraph 3.42 lists the actions that the Department has taken to improve control over Translink’s capital projects. Many of those actions, such as letters of offer and regular monitoring of spending, are common-sense practices. Why were those basic controls not already in place, and does it not reflect a high degree of incompetence that they were not?

Mr McGinn: The timeline for that goes back to 1998-99. In 1999, a framework and a dossier of controls were put in place. A set of arrangements was then implemented, and that was in keeping with what at the time was deemed to be good practice.

Mr McGlone: Between whom were those arrangements?

Mr McGinn: The arrangements were between the Department and NITHCo/Translink. It is important to remember that the basis for those arrangements was formed in 1999. They have since been reviewed, and significantly changed, as a result of other advice that has been received at various times — for example, Treasury advice. In 1999, the relationship between the Department and NITHCo/Translink did not have the same intensity or level of detail as it now does.

Mr McGlone: Will you clarify what you mean by that?

Mr McGinn: For example, we would now have a representative from the Department on the project board of all large projects. The information flow that the Department looks for from NITHCo/Translink has significantly changed. Therefore there is an intensity to how we now do our business, and that is reflected in the management statement and financial memorandum. Significant sums of money are being invested, and there is the need for a more intense set of arrangements. The NIAO report reflects that.

It is important to appreciate that the arrangements put in place in 1999 were in keeping with what was considered to be good practice at that time. Mr Carson is at the sharp end in working those arrangements every month. Those arrangements are an important element in ensuring that the reassurance that we give the Committee is based on substance.

Mr Carson: The relationship between the Department and NITHCo used to be an arm’s-length relationship. Matters were not dealt with in as much detail as they currently are.

The capital programme, for example, would have been looked at in its entirety. It was a lot smaller then than the present programme, but it was looked at en bloc, and we did not go into individual projects in the same way in which we would today. As Mr McGinn said, we now sit on project boards and receive detailed information about each project monthly. Therefore we are much closer to the coalface at departmental level than we used to be.

Mr McGlone: Therefore, before, the money was just thrown at projects, and away NITHCo went?

Mr Carson: I would not say that. There was discussion about adverse variances that were arising in parts of the capital programme. However, there definitely would not have been the understanding and the knowledge that we have today.

Mr McGinn: We have set up a specific unit, which David Carson heads. The way in which the Department is set up — the level of our own resources that we are allocating and the intensity of what is being managed — differs significantly from how it used to be.

Mr McGlone: I have heard the description "intensity of management", but all I have is a phrase. What does that mean in practice?

Mr McGinn: Paragraph 3.42 sets out a range of actions. We now have monthly arrangements in place to track all the projects and investments, and performance as well. In Committee, we have focused, quite properly, on control, but we have focused equally on the investment in rail and rolling stock that we want in order to secure the desired improvements in performance. Whether it be punctuality or reliability, or any of the other improvements that customers appreciate, I am pleased to say that significant improvements are being seen in customer satisfaction — for example, on the Belfast to Bangor line. The performance element that we are now managing covers outputs as well as inputs.

Mr Carson: Right from the outset, when the investment programme is being put together, we look at the underlying assumptions and incorporate them in the bidding process. Once the overall programme starts to take shape, we will look for investment appraisals. Translink has made major improvements in the quality of its investment appraisals in the business cases that it produces to support capital schemes. It now allows for optimism bias, which was not the case at the time of the Belfast to Bangor line relaying. We have made money available —

Mr McGlone: Will you explain "optimism bias", please? Is it financial elbow room?

Mr Carson: Yes, it allows for unexpected events that may arise in capital schemes, and is based on historical and empirical evidence.

Mr McGinn: On a project like the upgrade of the Belfast to Bangor line, optimism bias should be in excess of 40%.

Mr Carson: That is now included. We have made money available to spend on putting the business case together, so that time is taken to research the project conditions, and the budget estimates produced at that stage are now a lot more realistic. One of the major failings with the Belfast to Bangor railway line was that the budget estimates were grossly understated.

That all means that the investment appraisal is now a much more robust basis for proceeding with the project. The letter of offer is then issued, which sets out specific conditions for the project, and those are monitored monthly in considerable detail. For the major projects, we will have someone on the project board scrutinising the claims that come in for variations and additions, so there is a fair degree of interaction with Translink on the capital programme.

We have also improved governance generally with NITHCo. I will talk about that if the Committee wishes.

The Chairperson: We will return to that matter.

Mr McGlone: Will you clarify whether there is an overall internal audit of management procedures?

Mr McGinn: Do you mean for reassuring ourselves that the arrangements that we have just described are in place and are working?

Mr McGlone: Yes.

Mr McGinn: An internal audit review is scheduled for September, so we have been making arrangements for that. What we plan to do is to have a review that will look at what we have in place, compare that with what we would expect to have in place, ensure that it is working, and see what other improvements are needed.

Mr McGlone: Finally —

The Chairperson: I am sorry, but you have had a fair crack of the whip.

Mr Craig: I wish to follow up on what has been said, because the more that I hear, the more worrying it becomes. It states in paragraph 3.7 that there were "no written contracts." That is quite damning. Moreover, there was a lack of competitive tendering, and consultants’ contracts were extended without tendering.

Was the Department aware that it was continuing to give substantial amounts of public money to a body that disregarded basic public-sector procurement procedures? More importantly, when did the Department become aware of that and why did it not intervene immediately?

Mr McGinn: It is important to make absolutely clear what has been put in place. Translink is now accredited as a Centre of Procurement Excellence by the Northern Ireland Procurement Board. That is a recognised standard. To achieve and maintain that accreditation, Translink must continue to modify its practices in order to keep up to date and to a requisite standard. It is important that the Committee appreciates the standard that Translink has reached, and the fact that Translink has done a lot of work to meet that standard. However, it is critical that Translink should meet that standard and therefore provide the Committee with that level of reassurance.

That is the situation at present. However, there is no doubt that procurement and contract management issues are raised in the report. From the Department’s perspective, the critical point is that Translink has a set of externally accredited practices in which it can be confident will provide assurance for the future.

Mr Craig: I asked when the Department became aware of the situation and why it did not intervene. I am fully aware of how things have changed. However, I want to figure out how the massive overspend occurred and why the Department did not intervene.

Mr McGinn: Appendix 3 to the report includes a timeline from October 1998 to April 2004. There were discussions with the Department at various stages on particular issues. Are you interested in discussions that took place at a particular point in time?

Mr Craig: The crux of the matter is that the Department did not carry out a reappraisal when it realised that there was a massive overspend. At that point, what did the Department know? Why was an appraisal not carried out?

Mr McGinn: As I said at the outset, the reassessment ought to have taken place at that time. As the timeline shows, December 2003 is the point at which Mowlem Railways submitted its final claim, which brought the total account to £33 million. The report explicitly draws out the level of complexity of the claim. I do not try to hide behind that; it is stated in the report. It took some time for the final bill to emerge and for final negotiations to take place. The extent of the spend was not necessarily apparent at different points in the timeline. Undoubtedly, the reassessment ought to have taken place at the point that was discussed earlier. I would not say otherwise.

The Chairperson: Earlier in your comments, Mr McGinn, you said that there was 40% optimism in such contracts. Does that mean that contracts can be wrongly estimated by 40%?

Mr McGinn: It depends what language one wants to use. Contracts of that kind, and particularly rail contracts on these islands, do not have a great history. That is not a defence; it is merely a statement of fact. The experts, Mr Aiken and Mr Bradberry, will comment more fully. When an initial assessment is carried out, a degree of bias is used, whether for road or rail contracts. Experience has taught that that must be built in. There are good reasons for that, such as the passing of time and construction inflation, which is currently significantly above ordinary inflation, given what is happening on the island.

The Chairperson: That does not require a margin of 40%.

Mr McGinn: Experience has shown that a bias of at least 40% is needed. For this project, the figure ought to have been about 44%.

Mr Bradberry: I can perhaps help to explain the bias figure. Engineers are, by nature, optimistic. We always look to see how things will go right. However, beyond that, we carry out risk assessments on what could go wrong and how moneys should be assigned within an estimate to allow for that. To put in such a contingency is simply prudent practice.

Several years ago, the Treasury undertook a massive exercise of examining old Government contracts to determine how the original budgets had increased to the final out-turn figure. The Treasury subsequently produced a list of guidelines for what it called "optimism bias" to account for the increase. Optimism bias has a massive range — for an IT project, it starts at 200%. Several Government IT contracts have gone horribly wrong, so one can understand how the Treasury came up with that figure.

Optimism bias decreases, depending on the nature of the project, all the way down to building projects. As building projects tend to be easier to specify and correctly estimate, they therefore have an optimism bias starting point of 24%. However, I must be honest and say that those are starting points. Optimism bias begins at 44% for civil engineering works and around 64% for special civil engineering works. The starting points are based on the amount of information available when the estimate is calculated. The estimate is subsequently honed down over time.

The Chairperson: Does the Treasury define those figures?

Mr Bradberry: Yes, the Treasury defines those figures in its green book.

Mr McGinn: The Department did not have the benefit of an optimism bias.

The Chairperson: That does not mean that you have to get the estimate wrong by 40%.

Mr McGinn: I agree.

Mr Bradberry: An original estimate is calculated according to outline designs and feasibility. As detailed designs and more information are received, the estimate can be honed down and the contingency levels refined.

Mr Hamilton: After the termination of the Maunsell contract, Ferguson McIlveen was brought in as project manager and, for about a year, worked to try to assess the costs payable to the contractors, Mowlem Railways. However, the report states that it was unable to do so, and Translink had to agree a settlement figure of £23 million with Mowlem. How much was Ferguson McIlveen paid for its work, which was ultimately unsuccessful, and what, if any, benefit did Translink derive from it?

Mr Bradberry: The report states that Ferguson McIlveen was paid a total of £490,000. I do not think that its work was unsuccessful. The report also recognises the fact that the project became hideously complicated. One expert said that it was one of the most complicated projects that he had seen in 35 years.

By appointing Ferguson McIlveen, Translink was trying to understand as much as possible about the project, based on good information, and to establish responsibilities and to see where the costs would lie. Translink examined an "as built" programme for the works to determine the timetable of events and who was responsible for them. From that programme, it is possible to understand how much of an extension could reasonably be awarded to the contractor.

I asked Ferguson McIlveen to examine the overall costs and claims and to make its best value judgement on the highest and lowest costs that Translink might have to pay, so that there was a range of costs. Arthur Cox’s claims advisers originally carried out that exercise around 2002 and came up with a range of about £9 million. Ferguson McIlveen’s work in 2003 reduced the range to between £21·5 million and £25 million, thus enabling Translink to understand where the real costs of the project lay and how much the contractor was entitled to receive. By that time, I had joined Translink and found that work helpful in understanding the company’s position.

Nothing is ever black and white in such a complicated project, and there will never be total agreement with the contractor on the final cost. There comes a point when there is so little between the figures that a commercial settlement must be agreed. That was Translink’s intention, and that is what happened.

Mr Hamilton: "Hideously complicated" is one way to describe the project, and it is a fairly accurate assessment. However, considering everything that had gone wrong and given that Ferguson McIlveen was unable to arrive at an exact figure — you said that the range was between £21 million and £25 million — does a settlement at the halfway point of £23 million represent good value for Translink?

Mr Bradberry: I would draw back from using the term "good value" about anything to do with this project. However, taking into account our position at the time, it was the best result that Translink could achieve.

Mr McGinn: I would distinguish between those terms. Mr Bradberry is right in that he has given an insight into the contract negotiations and how difficult they were. However, we do not claim to have given taxpayers good value for money on this project.

Mr McLaughlin: Paragraph 2.29 of the report highlights that, some five years after the completion of the project, no post-project evaluation has been carried out. Given the project’s multiple failings, why was an urgent post-project evaluation not insisted upon?

Mr McGinn: I will explain that, as it might seem slightly unusual. Currie and Brown (IRL) Ltd, which is recognised as an expert in this field, completed a project management evaluation in February 2004, as mentioned in the timeline in appendix 3 to the report. A set of recommendations that had to be followed up emerged from that evaluation, and they have been. The post-project evaluation has now been carried out.

The reason for the delay was that dealing with Currie and Brown (IRL) Ltd, who had carried out an evaluation, seemed to be the priority — it was in similar territory to the post-project evaluation — as was implementing the recommendations. The post-project evaluation that we now have confirms a number of things that we already knew about value, but, more importantly, it gives no further recommendations.

In other words, the recommendations that we have implemented, from this report and the report from Currie and Brown (IRL) Ltd, point to the fact that there were failings in the project, but they are also saying that no further recommendations are to be pursued at this point. That provides some level of reassurance for the Committee.

Mr McLaughlin: I want to focus on paragraph 2.31 of the report, which refers to a significant rescoping of the project. It was felt that, in the interests of escalating costs, the initial specification of the 90 mph speed limit was not needed, so it was reduced to 70 mph. Partial, rather than full, relaying of sections of the track, a significant reduction in bridge works, a reduction in drainage and sea defences and no replacement of stockproof fencing were all opted for.

The rescoping of the project can be allied to what Mr Carson referred to as the gross underestimation of the cost of the project in the first instance. The specifications were dramatically cut back, yet there was still a significant overspend. The question of the optimism bias might come back to haunt us all. It appears that it is applied by all concerned at every stage of the project.

Has the Department ever considered how many other Translink projects have been grossly over-specified at the beginning? We are talking about 11·5 miles of track, 11 stations and trains travelling at 90 miles per hour. Did someone not realise that those figures did not compute?

Mr McGinn: Obviously this issue has received a lot of publicity. I will ask my colleagues Mr Aiken and Mr Bradberry to comment on that. There are a couple of important points. The 90 miles per hour speed limit was not part of the original appraisal. It was added to the specification in January and removed by March.

To a layman such as myself — as I understand it from the experts — the point is that the standard to which the track is laid is the same for a train travelling at 70 mph as it is for one travelling at 90 mph. That is an important point.

Mr Bradberry: To understand this matter, we must go back to the start, put the entire project in context and examine how it developed. The context was that the line was life-expired. If work was not carried out, the line was going to be closed, and soon. The objectives in the economic appraisal were to replace the line like for like. The operating objective was to reduce the timetable by two minutes — in other words, to put the track back to its 70 mph running speed. In undertaking that project, we would have had to remove the entire track, carry out all the ballast work and put the track back. At that time, the engineers said that that would give them an opportunity to consider whether the alignment could be improved to achieve a 90 mph running speed.

It should also be remembered that, at the time, Translink was in the middle of a procurement process for the purchase of new rolling stock that would have been capable of speeds of 90 mph. How is it possible to achieve 90 mph on 11 miles of track with 11 station stops? The answer is to run an express service; trains leave Bangor, perhaps stopping at Holywood, and travel on to Belfast. On that basis, trains could run at 90 mph.

The original economic appraisal and project aimed at replacing the line like for like. However, as Translink was removing the track and putting it back anyway, relaying it to a slightly changed alignment would incur a marginal additional cost. Therefore, the opportunity was taken to see whether the design could be tweaked to allow 90 mph running speeds. The design was examined in early 2001, and the minutes of the progress meeting between NIR and Maunsell show that we wanted to consider introducing 90 mph running speeds. Maunsell did not think that it was achievable, basically because the topography of the Bangor line is very curvy — there are many cuttings and embankments.

To go from a 70 mph curve to a 90 mph curve, the radius must be opened up and the track slewed. However, there is not necessarily the room to slew the track. Furthermore, all stations and bridges are fixed points and the track therefore cannot be moved. It was therefore decided that a 90 mph running speed could not practically be achieved. That matter was closed in March 2001, and the progress meeting minutes record the fact that the proposal for a 90 mph running speed was dropped and that we went back to the economic appraisal’s original requirement of 70 mph running speed.

Mr McLaughlin: It occurs to me that there is a strong optimism bias here. The project involved only 11·5 miles of track. I accept that there is a market there with commuters and customers. However, if we consider the problems in trying to develop, maintain, protect and preserve the line from Derry to Ballymena, we see that no optimism bias is involved at all.

It seems that if there is no post-project analysis, there will be no strategic overview of Translink’s activities. I accept that people started to re-evaluate the project at an early stage, but it is quite clear that the project was grossly over-specified from the start. Meanwhile, commuters and rail users in other areas were being told that there was no money to do anything other than preserve existing lines or carry out the minimum amount of maintenance work. Will the Department pick up on any of that?

Mr McGinn: The standard to which you refer ought to have been one of the options in the option analysis. In other words, an option should have been considered that involved, for example, 15 miles full relay and eight miles partial relay. One of the flaws was that another option was not considered at the outset; it ought to have been part of the option analysis. It is one of the learning points. The phrase "optimism bias" can be misleading. It is a technical term.

Mr McLaughlin: I expect the phrase to be used as the general population understands it, rather than the way in which it is used by the Department or internally.

Mr McGinn: That is why it is slightly misleading. The term "optimism bias" emerged as a technical term from the Treasury’s green book of 2003. This project did not have the benefit of optimism bias in that no figure was built in for it at the outset. However, if you are suggesting that there was a degree of optimism, that is a slightly different point.

I hope that the issue involving the speeds of 70 mph and 90 mph has been explained to the Committee’s satisfaction. That issue has lead to some misunderstanding.

Mr McLaughlin: For users of the Derry to Belfast line, optimism means hoping that trains will exceed an average speed of 30 miles per hour.

Mr McGinn: The Committee for Regional Development will take a keen interest in future investment in railway infrastructure. That Committee has already raised it as an issue and will surely return to it.

Mr Dallat: You had better believe it.

Mr Bradberry: I do not believe that the project was grossly over-specified. The engineering standards used are national rail standards and were appropriate for the work. The opportunity was taken to see if we could improve design alignment because the entire track was being removed and replaced. That is not an over-specification.

Mr McLaughlin: Paragraph 2.31 of the NIAO report indicates that a number of associated works were shed in order to try and prevent budget overruns. Given the final overall bill, the question of how much was overpaid for what was delivered remains. That is why I keep coming back to the absence of a post-project appraisal.

Mr Bradberry: Generally, the works that were shed were those which had been added after the economic appraisal had been carried out. When it became apparent that they could not be afforded, they were removed — they included stock-proof fencing and some bridge work.

Mr Beggs: I wish to return to Trevor Lunn’s line of questioning. Mr Aiken acknowledged that there were gaps in the legal advice given and that documentation had gone missing. Will Mr Aiken ensure that the accounting officer and the Comptroller and Auditor General receive a copy of all legal advice given to NITHCo? I assume that Translink’s solicitor has copies and that Mr Aiken has the authority to obtain copies in order to give them to the accounting officer and to the Comptroller and Auditor General.

Mr Aiken: I have already shared that advice with the accounting officer, but I will follow that through.

Legal advice was obtained on four occasions, each for a different purpose. Advice was given in early 2001 on re-tendering. Further advice was obtained in late 2001 in relation to the termination agreement. In late 2002, legal advice was obtained from Arthur Cox in order to assess the position with respect to claims. Finally, legal advice, which included the opinion from a Queen’s Counsel, was obtained in 2004-05 from Elliott Duffy Garrett, which sought to review previous legal advice. Most of that legal advice has been shared with the Department, but I am happy to give a commitment to provide all of it to the Department. If issues arise from that, or if there are lessons to be learned, I will follow those through.

Mr Beggs: Paragraph 2.24 of the NIAO report deals with the reasons given for failure to protect the right to claim, which was that a design was urgently needed. It was said that the head of infrastructure considered that the designs were capable of being salvaged. That was one of the reasons cited for the settlement. However, he subsequently told the Comptroller and Auditor General that he had not seen design drawings. How can that be explained? What went on?

Mr Aiken: I cannot explain it; it is a complete contradiction. Based on the conversations that I have had with existing managers in Translink, I can say that they support the view that the criticality of the design drawings was an important factor in deciding to go down the route of terminating the agreement and entering into a novation agreement. I cannot explain why evidence from the former infrastructure executive contradicts that view.

Mr Beggs: Every small company has a basic accounting system. There is a purchase order; goods are ordered and delivered; someone inspects them; someone signs off that the goods as acceptable, and authorisation is given to the purchasing department to pay for them. How could someone be paid for goods if there is no record in an accountancy section to show that the goods were delivered? Why does Translink not have a record of the views of the head of infrastructure?

Mr Aiken: The only records held by the company are those kept by the managing director and others. There may have been records in files that were subsequently destroyed, but we do not know of those.

Mr Beggs: I understand that the infrastructure director had access to files in his own department. However, in order for the accountancy section to authorise payment, it would have needed paperwork. What was the process and what paperwork existed in order to justify the payment?

Mr Aiken: These are payments to whom exactly?

Mr Beggs: The dispute was with Maunsell Rail regarding the design that it delivered and whether it was acceptable. There seems to have been an argument over whether or not the designs could be salvaged. I think that a section within NITHCo, other than that of the infrastructural director, would have some documentation to confirm that the designs were of some worth. Why is the documentation nowhere else in your department?

Mr McGinn: There is Translink, Maunsell Rail and the subcontractors — so Parkman is responsible for the designs. Mr Beggs, you are linking the designs inevitably —

Mr Beggs: I am trying to establish very basic, fairly simple things. Normally, goods are ordered; receipt of the goods is checked; and payment is authorised. There must be documentation in order to authorise payment. Before paying several million pounds to a consultant, I assume that the NITHCo department that authorised payment received some paperwork from another section that indicated that the goods were of some value. Did that authorising department have any documentation indicating that the designs were of any value?

Mr Aiken: The only payments that were made in respect of the designs were made to Maunsell Rail and through Maunsell Rail. A number of payments were made to Maunsell Rail, properly documented, with the cleared bill retained by the finance department. The supporting paperwork was retained by the purchasing department.

Mr Beggs: There is a dispute over whether Parkman’s designs were of any worth and whether the infrastructure director was satisfied that they had some worth. Why did the payments branch not have documentation indicating that they were of some worth or not?

Mr Aiken: There was no documentation because no payments were made to the subcontractor. The termination agreement enabled us to progress a payment to Maunsell Rail who, in turn, was required to pay its subcontractors. We did not have a direct contractual relationship with Parkman, the subcontractor responsible for the design drawings. It was a subcontractor of Maunsell Rail and, therefore, any payment had to be channelled through Maunsell Rail.

Mr Beggs: Does the accounting officer agree that there are lessons to be learnt about the many bureaucratic layers that existed here: the Department, the NITHCo, Translink, the lead consultant and the subcontractors? Was it not a recipe for disaster? Will the accounting officer be reviewing the purpose of the holding company in the future?

Mr McGinn: Considering the early stages of the project, the company believed that it had an arrangement with Maunsell. It quickly became apparent that Maunsell had six subcontractors. That added a layer of complexity that is evident from the conversation that we have had. It also brought a level of risk that was greater than anticipated. We are trying to streamline the process through the new arrangements. On complex projects in the future, the Department will have its own representative on the project board. We will try to ensure that we cut through the bureaucratic layers that make communication and getting things done much more difficult. We will make sure that that communication is much more direct.

Mr Bradberry: I wish to make a clarification, as it could be inferred from the discussion that there was no process in place at that time. There was a process in place, but how it worked with the termination agreement, I am not sure. The normal process is that if a consultant who is carrying out work wants an interim payment, he submits an interim valuation and a claim for payment to the engineer responsible for the works. That engineer signs off that claim for payment. The signed claim form is then sent to the head of infrastructure, who also signs it off. After that, it is passed to the accounts department for payment. The accounts department probably has an invoice with the signatures of the people responsible for signing off that work, confirming that they have received it.

Mr Dallat: Mr Chairman, we have heard a lot today. This report is somewhat different from others in that there seems to have been a deliberate attempt to interfere in the Audit Office’s records. While we all accept that the Audit Office is completely independent, I nevertheless read a statement that Mr Aiken, through a solicitor, wanted to change the record. We heard earlier that solicitors were a bit shy about those — but not when it comes to changing the public record.

Were you aware that he was doing that? What was your response? Did you approve?

Mr McGinn: Are you asking about the letter?

Mr Dallat: Yes.

Mr McGinn: The letter was not sent directly to me for approval, which might have been the normal process. However, I am happy with the way in which the Comptroller and Auditor General’s report has dealt with the issue and that it has been brought to the Committee’s attention. I appreciate why Mr Aiken felt it important to ensure that the public record was accurate, but the matter should have come through me before going to the Comptroller and Auditor General.

Mr Dallat: This is a very serious matter; it is certainly the first time in my experience that such an approach has been made. It is even more serious now that Mr McGinn has said that he was not even aware of it. Irrespective of how damning the report is and how badly the train was off the rails, we must be absolutely sure that the integrity and independence of the Audit Office is preserved. I would welcome an assurance from the Comptroller and Auditor General that he is satisfied that his independence has not been breached — or that he is satisfied that it will not be breached again.

Mr McGinn: I want to make a clarification. I was aware of Mr Aiken’s concerns, but the letter went directly to the Comptroller and Auditor General, and I am happy with the way in which he has dealt with it.

Mr Dowdall: Mr Dallat has raised a key point of frustration for us. If the public record starts to be changed, our work will quickly run into the ground. In this case, the records were poor in the first place, but the frustration was that the records were deliberately destroyed and reconstituted in such a way that we could not be sure that we could properly verify them. To then have the public record corrected at a later stage in the process is outside my experience as much as it is outside that of Mr Dallat.

By including the information in an appendix to the report, and I am glad that the accounting officer agreed with that being done, I am signalling that, if anybody changes the public record again in any investigation that my office is handling, I will always draw it to the attention of the Committee. It will then become a matter of discussion in this forum. That is a very important safeguard.

Mr Dallat: I welcome that statement from Mr Dowdall. This entire affair has been an absolute shambles, and I hope that the Department fully appreciates that interfering with the public record only made a really bad situation a lot worse.

Mr McGinn: The part of the report that deals with records management is very important, and in your opening question, Mr Chairman, you raised the importance of having good records management. That is critical in order to enable the Audit Office to do its work. The circumstances and the views held at the time must all be properly documented.

The Chairperson: When Mr McGinn introduced Mr Carson, he spoke about governance arrangements between arm’s-length bodies and the Department. Is Mr Carson satisfied that such arrangements will in future go through the accounting officer rather than go directly to the Comptroller and Auditor General?

Mr Carson: Yes. I do not see any possibility of that sort of incident recurring.

The Chairperson: Have measures been put in place or written guidance produced?

Mr Carson: No specific measures have been put in place in the governance documentation, for example. It has not been considered necessary to do that. An important principle is involved. There was a breach on that occasion, but I do not see it recurring.

The Chairperson: If no written guidance is in place, how can you be sure that it will not happen again?

Mr Carson: There is no written guidance in the governance documentation, but there are wider protocols of which we would be aware.

The Chairperson: Written protocols?

Mr Carson: I would have to check, but I am quite sure that the protocols are written down.

Mr McGinn: The internal audit review that we have scheduled for September might provide the reassurance that you seek, Mr Chairman. The review will consider all the arrangements that we have in place and whether they are fit for purpose in order to ensure that they allow relationships to operate as we wish them. That provides an opportunity, if there is a particular issue of concern.

The Chairperson: Is that the Department for Regional Development’s internal audit?

Mr McGinn: Yes, it is.

Mr Lunn: I wish to return to paragraphs 2.17 and 2.18. Paragraph 2.17 suggests that you were initially advised to make an offer of £16 million to the contractor. That advice came from Arthur Cox — we are back to Arthur Cox again — and was supported by specialist claims advisers. The advice was given after the completion of the contract but before all claims had been submitted. Arthur Cox appears to have given firm advice, which, once again, Translink seems to have ignored. The Comptroller and Auditor General states in paragraph 2.17:

"We could find no record of any consideration of this proposal or why it was not adopted."

Implicit in that statement is that firm advice was offered to Translink, but you did not take it. Paragraph 2.18 implies that, a number of months down the line, you also rejected Ferguson McIlveen’s advice on how to settle the matter and decided that Translink would settle it itself. Why was the initial firm advice from your solicitors ignored?

Mr McGinn: I will ask Mr Aiken and Mr Bradberry to pick that up after I comment.

Yes, there was that advice. However it is important to put it into context and outline the risk that went with making the settlement offer. Earlier, Mr Bradberry spoke of the process by which the figure of £23 million was settled on. The decision to ignore Arthur Cox’s advice is related to that process. In fact, it was the step that preceded settlement. Mr Bradberry and Mr Aiken will outline the process and the part that that decision played in it. They will also say why it was not considered to be the most effective way in which to take forward the negotiating process.

Mr Bradberry: I have not seen any documentation that explains why the advice was not taken. However, if I had been in that position, I would probably not have gone down that route either.

One must consider the position of the contractor at that point. It had undertaken a contract without basic information, and that caused extensive problems. It delivered on the job and could expect to be paid. From the available information, the contractor’s claim for the total cost of the contract must have been £29 million. Arthur Cox’s specialist claims advisers suggested that the range of settlement was between £20 million and £29 million. The most likely settlement figure was £25·2 million.

From the contractor’s point of view, it did a good job under the circumstances — it delivered and was therefore entitled to payment. Considering the relationship between the client and the contractor as they try to come to a fair and reasonable financial settlement, an offer of £16 million would have taken the dispute straight to the courts and involved even more cost. I would have taken the claims advisers’ advice and asked the contractor to substantiate its costs. That was the route that we went down.

Mr Lunn: Yes, but further to advice from specialist claims advisers to settle on a figure near to £25·2 million, Arthur Cox suggested that you settle on a figure £9 million less than that. In the event, you settled on £10 million below the full figure.

Mr Bradberry: Arthur Cox never expected the contractor to accept that offer. It was to gauge readiness to settle and to gauge what that settlement figure might be. Translink would have been aware that this was public money, and it did not have a firm idea of the correct and final contractual settlement because many issues that required pinning down were still up in the air. At that time, Translink would not have known a reasonable starting figure from which to negotiate a reasonable commercial settlement. Therefore work had to be undertaken to come up with the best range of figures for a reasonable commercial settlement.

Mr Lunn: Why did you ask Arthur Cox to make that assessment at that time?

Mr Bradberry: I cannot answer that question.

Mr Lunn: That is the point. It is a pity that your predecessors are not here — perhaps they could answer the question.

Mr Aiken: The work had been completed and claims had continued to escalate. The former managing director had decided that it was appropriate to seek further legal advice about the claims, and that is why he engaged Arthur Cox in Dublin, rather than in Belfast, to review the situation.

It is clear from the files that, in suggesting the figure of £16 million, Arthur Cox was well aware that the range was between £20 million and £29 million. Arthur Cox arrived at the figure of £16 million to try to gauge Mowlem’s readiness to settle and to ascertain whether settlement at the low end of the range was likely to be achieved. In other words, an elbow was put in the water to test the reaction from the contractor.

I do not know why the advice that was given by Arthur Cox in December 2003 was not acted on. I emphasise that the NITHCo board was unaware of the fact that Arthur Cox had proposed a claim strategy. There was a six-month period during which work was carried out and Schofield Lothian, which advised Arthur Cox, came up with a claim strategy. After that, the trail appears to have run cold.

Mr Lunn: You said that, on the second occasion, it was decided to consult Arthur Cox in Dublin, rather than in Belfast. Does that indicate a lack of confidence in the Belfast operation?

Mr Aiken: I do not know the reason that Arthur Cox in Dublin was chosen.

Mr Dallat: Cross-border bodies.

Mr Lunn: We may never be able to tease out those answers. I find it strange that a prominent firm of solicitors was, at first, engaged through its office in Belfast, and then it was suddenly decided to go to its offices in Dublin for what appears to be a second opinion.

Mr Aiken: I can only speculate that Arthur Cox in Belfast, which is an offshoot of the operation in Dublin, may have suggested that the expertise in claims settlement resided in Dublin. However, that is conjecture.

Mr Lunn: That information is probably available from Arthur Cox. You have offered to give Mr Dowdall any help that you can on the advice that was provided by Arthur Cox throughout. I understand that you have agreed to forward any further information that has not already been sent to Mr Dowdall. It will be interesting to discover why it was decided to use a different branch of the same solicitors.

Mr Aiken: I will attempt to follow up that matter and update the Committee.

The Chairperson: Had the NITHCo board been informed of those events and been able to ask questions, it would have held a minuted discussion on the matter. The record of such a meeting could not have been destroyed by the individual who destroyed the other papers. Therefore the board also has responsibility in that matter.

Mr McGlone: People in the wider community who are not as far up the corporate ranks, and who are possibly on low incomes, hear of soirées at which hundreds of pounds are blown. Do the witnesses appreciate the damage that that expenditure of public funds does to the credibility of management?

Mr McGinn: Are you referring to gifts and hospitality?

Mr McGlone: I am talking about the overall report that is before us.

Mr McGinn: There are two quite different elements to consider. First, all the lessons about the need for good and effective project management, contract management and procurement that have been drawn out of this discussion must be considered. I hope that some reassurance was taken from the evidence that I provided earlier about measures that are now in place, as a result of which there should be confidence that any further money invested in rail will be spent effectively. Lessons have been learnt from the project that we are discussing.

Secondly, there should be appropriate rules concerning gifts and hospitality, and they should be enforced. It is absolutely right that proper rules should be in place and be enforced.

Mr McGlone: I asked whether you appreciate the extent of the damage holding such events does.

Mr McGinn: Absolutely. That is why —

Mr McGlone: There was a lack of control over what was going on.

Mr McGinn: That is why I was keen to emphasise the system that is now in place. Many people — quite properly — believe that there should be investment in the rail network. It is important to have confidence that funds received today or tomorrow will be invested effectively and that effective monitoring and oversight procedures are in place. That is why I am particularly keen for the Committee to appreciate that the system that is now in place is effective and, more importantly, is seen to be working. A total of £25 million was spent on the Bleach Green to Whitehead relay, as well £11 million on the Fortwilliam train-cleaning facility. Those were substantial projects that were delivered effectively. That should give us confidence that the system that is now in place is working.

Ms Purvis: I used to think that a golden handcuff was a fiftieth-wedding-anniversary gift, but apparently it is not. Translink paid its head of infrastructure a golden handcuff of £28,500 to retain his services. How was the use of public money to pay such a bonus justified to DRD? Paragraph 3.18 states that the reason that was given to Translink’s remuneration and pensions committee was that it was a matter of succession. However, that committee:

"approved the additional payment to allow for the recruitment and handover to a successor",

even though no successor had been appointed.

Mr Aiken: The golden handcuff was paid because Translink’s management, supported by the board, felt that to lose Mr Barnett as early as September or October 2001, when the work was about to begin, was a serious risk to the delivery of the project. That decision must be viewed in the context of what was then known about the project and the aspiration that the work would be successfully completed within a tight timescale.

Mr Barnett was the head of infrastructure — the equivalent of Mr Bradberry’s predecessor — and he was the project sponsor. He had successfully overseen the completion of several other major infrastructure projects, and the Translink board had no reason to believe that he would not be able to do so again on the Belfast to Bangor railway line project. In the context of a capital works programme, the cost of which was estimated at that time to be £15 million, a payment of £28,500 was considered to be a justifiable expense in order to secure Mr Barnett’s services until the project’s completion. Hindsight being a wonderful thing, I accept that the justification for that payment looks somewhat weak, but the decision was taken at the time on purely commercial grounds, and it was believed that it would be money well spent.

I have to confess that the issue of succession was attributable to me, because I wrote the minutes of the remuneration and pensions committee meeting. I used the word "succession" because there were three executives whose positions were uncertain at the time. Mr Barnett had decided to leave Translink to move into academia, which he was hoping to do in September 2001. The chief executive had reached the age at which he could have left the organisation at short notice with his pension rights protected, and that situation left the company exposed. Finally, the then director of operations had been on sick leave for some time, and there was a concern as to whether he would be fit to return to work. Therefore the problem of the infrastructure executive was one of three difficulties, and I used the term "succession planning" as a strapline under which the remuneration and pensions committee considered those issues.

Ms Purvis: The period in which Mr Barnett was retained included the decision-making on design and the imposition of restrictions on the right to claim. Why was no action taken during that period?

Mr Aiken: When those difficulties began to materialise, the view still was that the project would be successfully delivered, albeit with some known problems.

The project started to go seriously awry in February 2002 with the fatality on the line during construction. When Mr Barnett eventually left the organisation, his final year’s assessment was marked down in order to reflect his failure in those areas, as a result of which he did not benefit from any performance bonus in his final year of employment.

Ms Purvis: Would the Department not expect to be informed of a bonus payment of that size?

Mr McGinn: Mr Aiken can perhaps clarify this, but, as I understand it, it would have been seen as an operational matter, with which the company’s remuneration and pensions committee would have dealt. The new management statement and financial memorandum specifies more detailed arrangements for remuneration. However, that is how it was at the time.

Mr Aiken: That is correct. The previous regulatory framework put no onus on the company to involve the Department in what were considered to be operational matters. The company operated with considerable autonomy, and, as the permanent secretary has said, that has changed significantly.

Ms Purvis: Therefore the Department is now informed of bonus payments?

Mr McGinn: Under the current arrangements, we are made aware of the details of remuneration, including bonuses.

Mr Craig: I have learnt something today about over-optimistic engineers and optimism on projects. In 20 years of working in engineering, I have never heard of either of those. In both cases, I have usually heard exactly the opposite.

To return to my earlier question, which did not receive a clear answer, I refer to paragraph 2.5 of the Comptroller and Auditor General’s report. That paragraph is damning about the decision not to reappraise the project. It states:

"We could find no documented justification or rationale for this decision and asked the Department why it had not insisted on a reappraisal when informed of the extent of the budget overrun."

We are talking about a decision that was made in July 2001. In normal circumstances, if there were a 10% overrun, there would be a reappraisal. At that point, there was a 24% overrun. What was the rationale that led the Department not to reappraise the project? Was it because of pressure from Translink? I would like an answer to that question.

Mr McGinn: The first, and clearest, answer, which I hope that I did give previously, is that the reassessment should have taken place at that time, without a shadow of a doubt. The fact that it did not is a major failing. That is unequivocal.

The senior member of staff responsible retired in March 2004. The project timeline runs from October 1998 to the present, so, naturally, there will have been retirements. All that I can do is to speculate about what happened. I suspect that pressure in the form of a desire to make the project proceed probably played a part in the decision not to reappraise it. However, that is speculation on my part.

Mr Craig: There was too much optimism that it would be all right.

The Chairperson: Following on from our agreed list of questions, I have two further questions, from Mitchel McLaughlin and Trevor Lunn. If other members wish to ask questions, please let me know.

Mr McLaughlin: Paragraph 3.16 states that, after the excellent work done by the Comptroller and Auditor General’s team, the Department ordered a forensic audit of the major projects in which the former head of infrastructure had been involved. Given both the NIAO report’s findings and evidence that the paper trail had been destroyed, there were clear risks that impropriety and fraud had occurred.

Why did Translink not order an immediate investigation when the removal of documents was uncovered? Did the Department ask Translink why it did not respond at the time?

Mr McGinn: I shall ask Mr Aiken to respond to your question in a moment.

A contracts expert carried out an audit from December 2005 to April 2006. Two referrals to the police were also made: one in 2002 and one in 2005. The police concluded that there was not enough evidence to proceed.

Inevitably, and instinctively, I share Mr McLaughlin’s suspicions about cases in which documentation is dealt with in such a way. That is why the two police investigations were requested, as well as the additional piece of work that the contracts expert did. I appreciate the risk to which Mr McLaughlin refers. Does Mr Aiken wish to comment specifically from a NITHCo/Translink perspective?

Mr Aiken: I am happy to embellish Mr McGinn’s comments. I was responsible, along with the then managing director, for carrying out the initial investigations when it was discovered that documentation was missing.

We engaged with the police at a very early stage, partly because the story that we were being told was changing quite dramatically, and partly because video evidence showed boxes of documents being removed. It is not true to say that the question of fraud was not addressed. The matter was raised with the police, but it was clear from the start that the police felt unable to pursue a fraud inquiry in the absence of further compelling evidence.

More specifically, the police stated at the time that the next logical step in a fraud inquiry would be to investigate bank records. However, court approval is required for that step, and the court will not give such approval unless there is compelling evidence to initiate such an inquiry.

The police made it clear that, without further compelling evidence, they could not facilitate any serious fraud inquiry. However, the possibility remained that after subsequent enquiries were made, a serious fraud inquiry could have been activated if something materialised that warranted investigation. Unfortunately, that was not possible.

The NIAO has reported that the internal inquiry was therefore limited to that of an inquiry regarding theft, and our primary objective was to try to recover documentation. That perspective was subsequently corroborated by the PSNI’s version of events.

Mr McLaughlin: That raises questions about the focus of the PSNI inquiry. A certain amount is known about the removal of documentation because of the surveillance tapes, but they do not identify or quantify the documentation involved.

Were Translink’s arrangements sufficient at the time? Was its response sufficient, and can the public be reassured that proper mechanisms are now in place and that there will not just be a forensic audit, or conclusions drawn on the basis of available evidence, when it is known that evidence was destroyed? Are back-up systems in place, and is there an assurance that paper trails can no longer be destroyed?

Mr McGinn: Two points have been made, and I will ask Mr Aiken to cover the second one, which concerns records management.

It may provide the Committee with some reassurance if I say that the forensic audit, which was carried out over four months, concluded that the head of infrastructure did not have opportunities to be involved in fraudulent activities concerning consultants or contractors. He was not responsible for the selection and appointment of contractors and had no involvement in preparing valuations of work for payment purposes.

That is the reason why the words "highly improbable" are used in paragraph 3.16. That ought to provide the Committee with some reassurance for what is an understandable concern.

Mr McLaughlin: One sentence jumps out at me:

"The audit, which was undertaken by a contracts expert, examined the available files on thirteen projects with which the Head of Infrastructure had been connected since 1991 to determine whether he had the opportunity to have been involved in inappropriate or fraudulent activity."

My attention is particularly drawn to the words "available files".

Mr McGinn: I can reassure the Committee that a massive exercise, which involved a huge amount of work, was undertaken between NITHCo/Translink and the Department for Regional Development to re-create what had been there previously. That exercise, the police activity and the contracts expert provided some reassurance. Paragraph 3.16 underlines that:

"The possibility of collusion was considered highly improbable and no evidence was found to suggest any fraudulent or inappropriate activity on any of the projects examined."

Mr McLaughlin: If only we knew what was in those boxes. That knowledge would perhaps explain why no evidence was found.

Mr Lunn: In paragraph 2.38, Currie and Brown expresses serious concerns about Ferguson McIlveen’s unwillingness to accept professional liability, recommending an investigation. It appears that that investigation was not conducted until after the Comptroller and Auditor General’s report in May 2006. Why were the serious concerns of independent consultants ignored? I know that I am beginning to sound like a broken record, but you seem to have ignored the advice of your own solicitors on numerous occasions, and it seems that you also ignored serious independent consultants to whom you were paying fortunes.

Before you answer that question, can I assume that, in the original tender process, Ferguson McIlveen had the next best tender after Maunsell?

Mr Aiken: The company that came second in the original competition was stepped over. Ferguson McIlveen came third, and it was invited to stand in for Maunsell and assist the engineer. NITHCo was in the middle of a contractual dispute with the company that came second, and the management therefore felt that it would be inappropriate to bring that company on board.

Mr McGinn: I believe that NITHCo took legal advice on that matter.

Mr Aiken: The company could not take legal advice at that time.

Mr McGinn: Did NITHCo take advice subsequently?

Mr Aiken: The subsequent legal advice was that there would be no long-term risk. Both companies have continued to work successfully with NITHCo since that time.

Mr Lunn: The management of NITHCo appointed Maunsell, which made a considerable mess of the work. Maunsell was then allowed off the hook without bearing any liability and with all rights of claim against it having been waived. It appears that Ferguson McIlveen was appointed in its place but was allowed not to assume professional liability from the start. Therefore, Ferguson McIlveen had been brought in without any responsibility for liability. I can understand why Ferguson McIlveen might prefer that route, in the light of what had happened, but I cannot understand why that company was allowed to get away with that by Translink, especially since Currie and Brown subsequently expressed such concern. Why does your company ignore consultants’ advice?

Mr Aiken: I will ask Mr Bradberry to address Ferguson McIlveen’s specific role. The project was already under way, and the main contractor had men and materials in two major locations. The track was already dug up in parts, and we were struggling to keep the line open in difficult circumstances. When Ferguson McIlveen was invited to assist on the project, it was not possible for it to spend six weeks carrying out a due diligence review in order to establish exactly what it was taking on board. The situation was at crisis point and required immediate assistance.

Ferguson McIlveen behaved responsibly by expressing a willingness to assist the engineer of works, who was a Northern Ireland Railways employee. There was a limit on how far Ferguson McIlveen could go in picking up someone else’s workload. Subsequent clarification by Ferguson McIlveen, and an audit carried out by another firm of consultants, strongly indicates that the professional service provided by Ferguson McIlveen was commensurate for the purpose that it was intended, and it greatly facilitated Translink’s engineers. A member of Clive Bradberry’s staff was the engineer of works, and he carried some personal responsibility at that time. Clive Bradberry will now explain how the relationship with Ferguson McIlveen worked.

Mr Bradberry: At that point, Translink’s professional head of track took overall responsibility for design. He was capable of doing that. Under the contract, Ferguson McIlveen was the engineer’s representative and supported the engineer in the administration of the contract: including site operations; consideration and resolution of engineering issues on site; assurances to the engineer that everything was happening correctly.

Previously, Northern Ireland Railways had undertaken track and signal design. Translink has staff who are capable of doing that, and it was comfortable with that role. It is unusual that the company would undertake that role on a project of this nature with the quantum of work involved. However, in such a situation, it was felt that that was the only way to progress. As Mr Aiken has pointed out, at the time, the track had already been lifted, and Translink wanted to move forward and have the work completed as well as possible.

Mr Lunn: Currie and Brown recommended an investigation. Why did you decide to ignore that advice?

Mr Bradberry: Previously, Translink’s engineering department had been involved in design work and had taken responsibility for it; it was comfortable with that role. The problem was that it did not clarify the position with the Northern Ireland Transport Holding Company board. Currie and Brown suggested that the board was not completely clear on that position, and I acknowledge that that was a mistake. However, it was subsequently corrected, as explained in paragraphs 2.40, 2.41 and 2.42 of the report.

Mr Lunn: Does Translink have its own staff who are professionally qualified to do the same track design work as Ferguson McIlveen or Maunsell?

Mr Bradberry: It does.

Mr Lunn: Is it fair to say that Translink uses its own staff only for smaller jobs?

Mr Bradberry: Yes, it is.

Ms Purvis: Mr McGinn, you said that a post-project evaluation had been carried out and that it made no further recommendations.

Mr McGinn: That is correct.

Ms Purvis: The report states that:

"the operational objectives of the project were the reduction of passenger journey time by an average of two minutes and avoidance of future significant increases in journey time."

Does the post-project evaluation state that those objectives have been met?

Mr McGinn: Although a number of objectives that we have explored today have not been achieved, the objectives on journey times have been achieved. It is useful to reflect on that, given the investment. Passenger numbers on the line have increased significantly; that ought to be a source of satisfaction to us all.

Ms Purvis: Can the post-project evaluation be made available to the Committee?

Mr McGinn: It is a recent report, and it needs to be formally signed off. However, the recommendations in the report have been accepted and are being implemented. The post-project evaluation has been received.

Mr Dallat: I will sum up. Initially, the project to relay the Belfast to Bangor railway line had an approved budget of £14·7 million; it ended up costing £33·9 million. It seems that the Department for Regional Development was Santa Claus, and that it was Christmas every day at Translink. Can you let us into the secret of where you got the additional £19·2 million? Did it come out of the health or education budgets, or perhaps potential spending on the Belfast to Derry railway line?

Mr McGinn: Other railway lines had not received approval, so the money was specifically for the Belfast to Bangor line. Inevitably, when there is an overspend of that size, the money always comes from somewhere. So, yes, there was an opportunity cost.

Mr Dallat: I hope that I am in order by saying this, but given the constraints on the budgets of all the Departments, the Department for Regional Development got an extra £19·2 million to produce a project that was late and that was not even up to the standard of the initial plan. Surely the Public Accounts Committee is entitled to receive some indication of how you managed to squeeze so much money out of a budget already strained at the edges. People are dying of hypothermia, yet you cannot tell me how you got this enormous sum of money to put into a project that was fatally flawed from day one.

Mr McGinn: Mr Carson will comment on the process.

Mr Carson: It should have been recognised from the outset that the scheme would cost more, and we have already said that the initial amount was understated. Subsequent allocations would have been made as part of the normal budgetary process, and there were no other rail schemes at that time from which money would have been taken away as a result of the Belfast to Bangor scheme.

Mr Dallat: I know, but public representatives — and there are many of them here — were told for years that money simply was not available to upgrade the Belfast to Derry line that I keep talking about. The Department for Regional Development managed to squeeze another £19·2 million out of somewhere — we do not know where — so why can it not squeeze some more out for other parts of the network that are in a shambles?

Mr McGinn: Those are fair points that you have already made to my colleagues and me in the Committee for Regional Development. We are looking at future investment. I am sure that we will return to the specifics that you have raised.

Mr Dallat: The Public Accounts Committee will make its own recommendations, but I hope that the Comptroller and Auditor General will be back sooner rather than later to assure this Committee that all the recommendations you have given today will actually be implemented.

Mr McGinn: The reason for the internal audit review is to reassure the Committee. The review is scheduled to ensure that the recommendations that are set out in the report are put in place and are working effectively.

Mr Beggs: Taking up one of Mr Dallat’s points, I was informed locally that the Larne line was delayed due to a lack of money that had been spent on the Bangor to Belfast project. Is that the case? Customers in Larne, as well as having all the old trains, have had to put up with a number of track locations being limited to a running speed of 30 miles per hour. For a train network, that is not acceptable and not appropriate. Can you confirm that the Larne line was delayed because money had to be diverted to paying for the overspend?

Mr McGinn: No. As David Carson was saying, no other projects suffered. For example, there was approval for projects such as the Bleach Green to Whitehead project, which impacts on the Larne line, and that project was carried out. That was a specific proposition, approved and financed with a substantial investment of £25 million. There may have been an opportunity cost as regards government overall but in respect of specific schemes, it has always been the understanding that we assess previous investments and then consider investments that could be made in future, such as on the line north of Whitehead or north-west of Ballymena. That remains the position.

Mr Beggs: To clarify, is that the Whitehead to Belfast line that was part of the core structure to be upgraded?

Mr McGinn: The Bleach Green to Whitehead project was a £25 million investment.

Mr Beggs: I have a question for the Department of Finance and Personnel official. Two early failings were made in the huge list of fiascos that we have heard today. The first one was to ignore the 10% limit when no reappraisal kicked in, and the second was to enter into contracts when no design had been agreed. How will you ensure that each Department learns the basic lessons from this experience and that other public bodies held at arm’s length from the official Departments also learn lessons from it, so that we never have to hear of such a fiasco again?

Mr David Thomson (Department of Finance and Personnel): The guidance is there, and we regularly repeat it. I must have written updates for economic appraisals 10 or 20 times over the past five or six years. The guidance is clear as to what should happen with overruns in cost: if an increase is more than 10%, the appraisal should be looked at again.

The other reassurance that I give the Committee is that since 2002 — I might have to check that date — we have introduced the gateway review process. That is a system whereby all major projects must go through five different gates, and, at each of those gates, costs and every other factor are analysed. A rigorous external review is carried out independently, although that did not apply to the case in question. However, I am convinced that if the gateway review process had been applied there would have been a different outcome.

The Chairperson: You will be glad to know that we have come to the end of the questions. I thank the witnesses for their co-operation and their answers. Today, the Committee heard a report on how not to build a railway or to spend public money. As I said at the start, the Committee’s job is not a blood sport; rather, it is about ensuring that such debacles do not happen again. The Committee will prepare a report of its conclusions from today’s meeting.

Several issues stand out, principally the complete failures that occurred on various levels. First, management failed and the boards let it fail. The boards did not carry out their duty to ensure that either the appropriate questions were asked or that the multi-million pound projects — which were ultimately their responsibility — were being managed properly.

Regardless of the documents that went on yer man’s shoulders to the nearest skip, there are no minutes of the board meetings that dealt with the project — minutes that would have provided details of legal questions that were asked and what happened to the designs. All those questions could have been answered by minutes of board meetings, but they are not available. However, the Department is ultimately responsible for what happened.

Several other questions stand out in regard to the optimism bias clause, which we have heard is 200% for an IT project and goes down to 24% for a building project. I am not sure whether that issue is within the remit of this Committee or within that of the Committee for Finance and Personnel. However, someone needs to consider it because it is a very optimistic figure. The Department went more than 100% over budget for the Belfast to Bangor railway line — even with the 40% optimism clause.

There is no trail to suggest that another project lost out because £19·2 million was spent on this one. However, other projects must have lost out — in transport, health, education or another field — because £19 million was spent on the upgrade of the Belfast to Bangor railway line that could have been spent elsewhere.

The Committee will consider the evidence presented today before completing its report, but there are several other matters that I wish to be included in the report. Mr Aiken and Mr Bradberry made commitments about forwarding information; I would like that information to be forwarded within two weeks so that the Committee can complete its report. The Committee Clerk will write to you with confirmation on that.

I am also concerned about whether Translink and NITHCo are capable of carrying out projects that have major budgets. Mr McGinn mentioned two projects —

Mr McGinn: The Bleach Green to Whitehead line and the Fortwilliam train-cleaning facility.

The Chairperson: Those projects came in on budget. Will you provide the Committee with a list of all projects — not only those that are rail-related — that are worth more than £1 million that NITHCo has completed since the Bangor line was finished? Please outline how the cost compared with the original appraisals. In addition, can you please provide the Committee with a list of all transport projects of more than £1 million currently under way or planned to begin before the end of the next financial year? That information should be sent to the Committee within the same two-week period that I gave Mr Aiken and Mr Bradberry.

That is all. Thank you for you time and co-operation.

Appendix 3

Correspondence

Committee Clerk’s Letter of
01 June 2007 to
Mr Gerry McGinn, Accounting Officer, Department for Regional Development

Further to the evidence session at the Public Accounts Committee yesterday, I am writing to request the following additional information which members requested at the meeting:

1 A copy of the written protocols between your Department and the Northern Ireland Transport Holding Company regarding governance issues.

2 A copy of all legal advice received by NI Transport Holding Company and or Translink from Arthur Cox, Solicitors.

3 An explanation as to why Translink chose to engage Arthur Cox in Dublin when they had already engaged the Belfast office to conduct their previous legal work.

4 A copy of the Project Benefit Evaluation Report which should include whether the intended benefits of the project had been achieved.

5 A list of all projects worth more than one million pounds completed by the Northern Ireland Transport Holding Company (not just rail) since the Belfast to Bangor railway line was completed, and how the final cost compared with the original appraisal. In addition, please provide a list of all Translink and Northern Ireland Holding Company transport projects over a million pounds, currently underway or planned to begin by the end of next financial year.

The Committee would appreciate this information by 15 June 2007.

Committee Clerk’s Letter of
08 June 2007 to
Mr Gerry McGinn, Accounting Officer, Department for Regional Development

The Committee met yesterday and agreed to ask for further information relating to the oral evidence session, as follows:

1. The Committee would like you to supply the names of all members of the Northern Ireland Holding Company, Translink and your Department, or others in senior positions who were present at either of the two retirement functions in Wicklow or Whitehead.

2. The Committee requests that you identify those who worked on the appraisal that initially suggested a budget of £14.7 million.

3. In the evidence session, the Committee was told that allocations to the project were made "as part of the budgetary process". However, the Committee wishes to clarify whether the additional £19m of funding came from NITHC, the Department, or through budget re-allocation via the Department of Finance and Personnel? Can you also confirm the projects or the source from which this funding was transferred?

4. The Committee would like to know whether the decision not to reappraise the project, which was described as "fatally flawed", was taken at Accounting Officer level, and if not, at what level was it taken.

5. In my previous correspondence of 1 June 2007 I asked you to provide the Committee with details of spend on Translink projects since the Bangor line was finished. In addition the Committee would like to know how many of these projects have been through any stage of the Gateway Review referred to by Mr Thompson.

The Committee would appreciate this information by 15 June 2007. I apologise for the short deadline, but the Committee expects to consider the first draft of its report on 28 June 2007.

Correspondence of 15 June 2007 from
Mr Gerry McGinn, Accounting Officer, Department for Regional Development

ANNEX 4 Schedule 1

Capital Rail Projects over £1m completed by Translink

Project	Original Appraisal £'m	Re-Appraised Amount £'m	Outturn £'m
Antrim Bleach Green	18.0	N/A	18.0
New Rolling Stock	87.0	N/A	81.3
Automatic Half Barriers Jordanstown/Moira/Trooperslane/ Trummery	5.3	7.1	7.1
Bfast/Whitehead Reconstruction	23.7	25.2	24.7
Post Selby (Road Service Overbridges)	1.2	N/A	1.2
Whitehead to Larne Track Renewal	2.7	N/A	2.2
Cleaning & Stabling Facility	5.7	11.4	11.4
Infrastructure Adjs to Acc New Trains	2.1	N/A	2.1
Train/Driver Simulator	1.2	N/A	1.2

Annex 4 Schedule 2

PEACE II Projects over £1m completed by Translink

Project	Approved	Outturn £'m
Magherafelt Bus Station	1.0	1.0
New Buses	1.5	1.5
Downpatrick Bus Centre	2.1	2.1

Building Sustainable Prosperity Projects over £1m completed by Translink

Project	Approved£'m	Estimated Outturn £'m
Falls Road Running Repair Shed	1.7	1.7
Translink Accounting System	1.9	1.9

Annex4 Schedule 3

Capital Bus Projects over £1m completed by Translink

Project	Original Appraisal	Revision to number and type of buses to be purchased	Estimated Outturn £'m
Bus Replacement Programme	363 Buses at £48.4m	352 Buses at £48.4m	48.4

Annex 4 Schedule 4

Capital Rail Projects over £1m ongoing or planned by Translink

Started or Planned Projects	Approved Cost £'m	Current Translink Estimated Outturn £m
Additional Train Capacity	2.6	2.6
New Rail Service Programme	6.8	6.8
Newry Railway Station	12.6	12.6
Station Halt Disability Discrimination Act (1995)	10.3	10.3
Train Protection Warning System (TPWS)	3.4	3.4
Ballymena to Londonderry Track Life Extension	12.0	12.0
York Rd Running Repair Depot Extension	3.0	3.0
Knockmore to Lurgan - Track Renewal (line speed recovery)		40.5
Meeting House Lane MSL & Glebe Road MCB Upgrade Project		1.6
Dargan Bridge Switch Replacement & Sleeper Rehabilitation		1.1
UWC 196 Reconfiguration - Brolly's / McConaghy's		1.1
Ballast Hoppers		1.5
Sea Defences - Lesser Used Lines		2.6
Portadown Railway Station Redevelopment		6.0
Europa Internal Restructure (GVS Pass. Flow,Bus Centre,Info Point)		2.5
Ballymartin Park & Ride		2.0
Carrickfergus Park & Ride		2.0
Ballymena P' Way / S&T Store & Yard		3.0
York Road - Fuel Apron		1.2
Antrim Integrated Bus / Railway Station		5.4
CCTV Programme		2.3

Annex 4 Schedule 5

Capital Bus Projects over £1m ongoing or planned by Translink

Project	Approved Costs £'m	Current Translink Estimated Spend £'m
BUS GRANT - Purchase of 50 Single Deck High Capacity Buses	5.9	5.9
BUS GRANT - Ulsterbus Replacement Programme - 80 Double Deck	14.0	14.0
BUS GRANT - Ulsterbus Replacement Programme - 90 Single Deck	12.6	12.6
BUS GRANT - Ulsterbus Replacement Programme - 20 Goldline Express Coaches	4.3	4.3
BUS GRANT - Ulsterbus Additional School Requirement - 110 High Capacity Single Deck Buses	13.0	13.0
BUS GRANT - Belfast Metro School Bus Requirement - 20 Double Deck Buses	3.5	3.5
BUS GRANT - New Buses for Belfast Metro Phase 2 - 25 Double Deck Buses	4.4	4.4
Ballynahinch Bus Station	N/A	1.4
Enniskillen Boundary Wall, Bus Wash and Garage Improvments	N/A	2.0
Lisburn Bus Station	3.0	3.0

 

 

Appendix 4

List of Witnesses Who Gave
Oral Evidence to the Committee

Mr Gerry McGinn, Accounting Officer, Department for Regional Development.

Mr David Carson, Director of Public Transport Performance Division, Department for Regional Development.

Mr Jim Aiken, Director of Corporate Affairs, Northern Ireland Holding Company.

Mr Clive Bradberry, Head of Infrastructure, Translink.

Mr John Dowdall, Comptroller and Auditor General.

Mr David Thomson, Treasury Officer of Accounts, Department of Finance and Personnel.

Appendix 5

Details Of
Unpublished Papers

1. Management Statement and Financial Memorandum – Northern Ireland Transport Holding Company.

2. Note on Use of Arthur Cox Belfast and Arthur Cox Dublin.

3. Advice from Arthur Cox re Tendering Procedures, June 2001.

4. Advice from Arthur Cox re Termination of Maunsell Rail, September – December 2001.

5. Advice from Arthur Cox Claims Strategy, June 2002 – April 2003.

6. Project Benefit Evaluation Report prepared by Grant Thornton.

7. Gateway Review Process.

The papers listed above were submitted to the Committee but have not been printed. They may, however, be inspected by members in the Assembly Library and by the public in the Public Accounts Committee Office, by prior arrangement with the Committee Clerk, during normal working hours. (Contact telephone number: 028 9052 1208).