COMMITTEE FOR
FINANCE AND PERSONNEL
OFFICIAL REPORT
(Hansard)
Maze/Long Kesh Regeneration Site
25 June 2008
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Roy Beggs
Mr Simon Hamilton
Mr Fra McCann
Ms Jennifer McCann
Mr Adrian McQuillan
Mr Declan O’Loan
Mr Peter Weir
Witnesses:
Mr Michael Brennan )
Mr Jack Layberry ) Department of Finance and Personnel
Mr Leo O’Reilly )
The Chairperson (Mr McLaughlin):
As previously agreed, this session will be covered by Hansard. I remind visitors and members that mobile phones should be turned off completely, as they interfere with the recording equipment.
Members will find a paper from the Department of Finance and Personnel in their folder. It provides details of the Department’s role with respect to the business case for the Maze/Long Kesh site. The Department’s analysis of the outline business case is also included.
I welcome Leo O’Reilly, the second permanent secretary; Jack Layberry, head of supply, and Michael Brennan, head of strategic policy division. Good morning, gentlemen. Leo, since we already have a copy of your paper, I suggest that we move straight to discussion, if that is OK. Is there anything that you want to say before we begin?
Mr Leo O’Reilly (Department of Finance and Personnel):
No; given the time constraints.
The Chairperson:
I understand that you have a prior appointment.
Mr O’Reilly:
If some issues are not covered during the question-and-answer session, I can deal with them when summing up, if that is alright.
The Chairperson:
That will be fine.
Mr Hamilton:
How frequently would not one but two accounting officers pass a project to the Department of Finance and Personnel in which both of them were saying that it did not represent value for money?
Mr O’Reilly:
In my experience that particular sequence of events has never happened. Sometimes, an accounting officer may have concerns about a project’s value for money, and he or she would discuss those concerns within the Department, and with the relevant Minister. If the Minister believed, nonetheless, that a project has value in a wider perspective, the relevant accounting officer would seek direction from the Minister to proceed with the project; and the Department of Finance and Personnel would be involved in that process. That has happened four or five times over the past eight years.
The Chairperson:
Given the composite and disparate nature of this particular package, I can see difficulties for accounting officers from Departments with discrete functions being able to make a judgement on it. The package contains many cross-cutting elements, but it also contains elements that are the responsibility of other Departments or agencies. Accounting officers would be in a somewhat difficult position in making a judgement in such circumstances.
Mr O’Reilly:
Without going into the complexity of the matter, I would say that this project is uniquely complex in structure: two Departments are involved; as well as the Department of Finance and Personnel, the strategic investment board, a range of private-sector development partners and the sporting bodies. In answer to your question, there is a role for the accounting officer to play, given the specific circumstances that you described; however, the role is limited.
The accounting officer’s role is narrowly confined to the financial and economic consequences — the value-for-money judgement — of a particular project. Without going into the technical details of this project — although I can if you wish — those consequences are measured using what is commonly referred to as the net present cost (NPC) of a project, and that is usually calculated over the fairly long lifespan of a project. Established UK-wide econometric and economic analysis tools are used to determine whether a project will have a long-term net cost to the public purse and to the wider economy.
Normally, the accounting officer would take the view that he could not recommend a project on value-for-money grounds. However, sometimes those are judgements are relatively marginal, and the sums of money are also relatively marginal. Given that there is an element of uncertainty in the NPC calculation, the accounting officer can, and ultimately must, defer to the judgement of his Minister — or in this case, Ministers, given that it is a cross-cutting issue. It would be for the Minister, or Ministers, to decide, on the basis of the advice received, whether they wish to proceed with a project. There are clear mechanisms in place to allow that to happen.
Ms J McCann:
It seems that the strategic analysis paper has looked at the stadium in isolation from the other proposals and attractions for the business community. There is no emphasis on the fact that the site was gifted or on the creation of 10,000 jobs that was talked about. Did DFP examine all bids for developing the site?
Mr O’Reilly:
I will ask Mr Brennan to comment on the detail of how the fact that the site was gifted was taken into account and on how the economic analysis was carried out.
I stress the general point that DFP’s comments in the paper are based on the information received from the Office of the First and Deputy first Minister and the Department of Culture, Arts and Leisure — particularly the two major business cases that were prepared on behalf of OFMDFM and PricewaterhouseCoopers. Therefore our comments, and the figures that we quote, are based on those that we have obtained though those various sources — that is just a generic, contextual point.
The member mentioned the figure of 10,000 jobs. There has been some media comment about 10,000 jobs — that figure was never presented to DFP in the analysis. My colleagues can quote the precise figures, but the net projected job-creation figures provided to DFP were in the region of 4,000 jobs, subject to some uncertainties. The figure of 10,000 jobs was not provided to DFP by either of the two Departments concerned.
Ms J McCann:
Does that not suggest that the analysis paper is setting out the worst-case scenario?
Mr O’Reilly:
It suggests that the figure of 10,000 jobs is highly speculative and was therefore not of sufficient substance to be included in a business case.
Ms J McCann:
But you do not have all of the information.
Mr O’Reilly:
I assume that if the leading Departments felt that there was potential for 10,000 jobs, they would have wanted to include that figure in their business case, which they did not do.
Ms J McCann:
It seems to me that the analysis paper is concentrating on the worst-case scenario, and that there is no viable alternative for the three sporting organisations. If you are saying that you are only working with certain information, surely a wider gathering of information must take place?
Mr O’Reilly:
I will pass over to Mr Brennan to answer the point about the gifting of the site.
Mr Michael Brennan (Department of Finance and Personnel):
There are three issues. First, the assessment of the business case focused not on the worst-case scenario but on the best-case scenario — it looked at the preferred bids that were submitted in the outline business cases. The figures quoted do not just refer to the stadium — a NPC range of between £153 million and £190 million does not just relate to the stadium; it relates to the whole Maze/Long Kesh development. It includes ICT, infrastructure, and the stadium.
As regards the gifting of the site, the business cases assessed a range of options, and the fact that the land was already in the ownership of the Executive and the Assembly was considered. Some of the other options may have required the purchasing of land, which would have been factored in. The NPC would have already incorporated the fact that there was a zero price and contractual purchase required for the Maze/Long Kesh site. If there had been a contractual purchase required for the other options assessed in the business cases, it would have been factored in.
As regards the 10,000 jobs; the preferred bidder in the outline business case that DFP received suggested that, on a gross basis, 5,000 jobs would be generated at the Maze/Long Kesh site. After allowing for displacement — in other words, that the 5,000 jobs would remove other jobs from elsewhere in Northern Ireland — a net figure of 4,100 jobs was arrived at, and only 3,000 of those would be on the site. The figure of 10,000 jobs is not earthed in any of the outline business case material that DFP received. As I understand it, the figure has been referred to OFMDFM by the preferred bidders as a potential figure. The figure is not earthed: it is an aspiration.
Ms J McCann:
Has the delay in taking the project forward jeopardised a value-for-money case?
Mr O’Reilly:
The delay has been a matter of concern for us. It is also tied up with the sequencing of events. The original timetable that we had been working on with the two Departments was that the outline business case would be available by July 2007 for consideration over a period of time by Ministers. Once a decision had been taken on the outline business case, the preferred bidder competition would be concluded. What actually happened was that the preferred bidder process was concluded around December 2007, but no outline business case had been produced. That means that we have ended up in the rather strange situation of having completed a preferred bidder competition without any decision having been taken on an outline business case for the project. That is unprecedented in my experience.
Mr Jack Layberry (Department of Finance and Personnel):
That is right; it is a key point. The synchronicity between those pieces of work is vital. Originally, DFP had agreed, unusually, that the preferred bidder competition could proceed on the basis that the outline business case would be ready by last summer, and that we would not have been required to make a decision on the competition until now. However, the outline business case that was to be presented to DFP has been delayed, which has resulted in a situation in which we do not have an agreed outline business case and the preferred bidder competition has reached its end.
Mr O’Loan:
This is a most important project. It is a large-scale project. In status and in meaning for the future of Northern Ireland, it is immense. It represents a major opportunity in its own right. What it says about our ability to deliver a shared future here is of enormous significance. Our ability to attract external investors is a huge part of the assessment of this project. If we do not handle it well, the message to external investors is extremely bad indeed. For very many reasons it is important that we get it right.
Economic analysis and political decision-making are important if we are to get the project right, as is public information and how public opinion is formed. In turn, that informs how political representatives respond. I am very concerned about the quality of public information that is emerging about this project. I am also concerned about the one-page summary that was provided to the Committee today — a one-page summary of a 25-page document. Were an external reader to peruse that one page, which comprises just four bullet-point paragraphs, and read the final paragraph:
“The DFP analysis concurs with the conclusion already reached by the two Departmental Accounting Officers that the proposal does not offer value for money.”;
he would say that the message is perfectly clear — we should simply walk away from the project. Are you saying that your advice to Ministers is that this project does not offer value for money and that they should walk away from it?
Mr O’Reilly:
The bullet-point summary was provided to the Committee within the past 24 hours in response to a request to briefly clarify the role of DFP in the process. The document that we would prefer people to use provides a much longer analysis than the summary that was circulated to the Committee. I recognise that this is not a matter that is deserving of a short summary or easy exposition of the complexity of the matter.
Mr O’Loan mentioned the quality of the information that is in the public domain. That issue is complicated further, as I explained earlier, by the fact that the preferred bidder competition is still live and has not been concluded. In turn, that means that all the parties to that competition are constrained with regard to the information that they can disclose about the various pieces of material submitted by bidders in their bids.
That feeds in to the quality of the analysis, which is why, for example, in much of the material, quite wide ranges of figures are quoted throughout the document. That is because we are working on a range of figures that has been provided to us. Obviously, the precise figures depend on those provided by a preferred bidder, if and when one was selected. Subsequently, a period of negotiation with that preferred bidder would begin in order to reach a final set of figures. That is why the figure work is quoted in quite large ranges.
You also highlighted the issue of external investors. The points made are self-evidently correct. However, there is a very substantial local public investment in the proposals, in addition to that of external investors. In particular, we are examining the trade-offs between the scale of the internal investment versus the benefit that might come from an external investor.
You also highlighted the shared future issue. Mr Brennan has been looking at that issue in the context of analysing the long-term benefits.
Mr Brennan:
As Mr O’Reilly mentioned in his introduction, accounting officers form a view using the economic appraisal process and based on the NPC. It is a very mechanical process to use, but they must come to a conclusion as to the NPC value for a project. In this case, we have used a range to cover the various views expressed. However, ultimately, officials can only advise Ministers on the basis of quantified costs and benefits, and that has led to this range of the NPC of between £150 million and £190 million. As Mr O’Reilly said, it is then for Ministers to take a view.
The perceived benefits of a shared future were not identified in the outline business cases that were presented to DFP. There was no attempt to quantify such benefits, either through a benchmarking exercise or scorecard approach, so that a monetary amount, or benefit, could be attributed. Therefore, DFP could not factor those non-quantifiable costs or benefits into the appraisal process.
Mr O’Loan:
What is a competitive dialogue bidding process?
Mr Brennan:
It is a process whereby the public sector organisation that wants to initiate a project on a site engages with one or more people who are interested in the development of the site — in this case, the Maze/Long Kesh site. The organisation will then seek to pressurise those parties into making concessions on, for example, pain/gain mechanisms to construct, in this case, a stadium or an ICCT, or to contractually commit to some type of profit-sharing. Therefore, it is the process by which one uses the presence of more than one bidder to build-in contractual gains for the public sector.
Mr O’Loan:
From what you have said, it seems that it is a dialogue or an ongoing process. Therefore, rather than putting something out for a single bid, there is a continuing engagement with the parties.
A key paragraph in your document includes discussion of the NPC. Indeed, there is an indication that the NPC has been raised in some of the analyses from £156 million to £193 million. The paper goes on to discuss affordability — and I know that there is a longer section in the document that deals with affordability — and there is a reference to costs up to 2014-15 of £379 million on balance sheet, or £307 million off balance sheet. That is followed by a reference to private-sector involvement and private procurement. I take it that that must be subject to the negotiations we have talked about and that those negotiations would reduce the cost to Government to between £120 million and £140 million?
Will you clarify those figures? I have talked about public understanding of those figures and, not surprisingly, the media wants to be able to give information to the public in simple terms. However, there is difficulty in doing that, particularly as regards the NPC. I am not saying that the calculation does not involve real money; however, it involves actuarial-type calculations whereby values in the future are brought to their present value. Such a process is very difficult to explain and does not enable ease of understanding.
At the same time, there is a need for public understanding of the issue. People are asking what the project is going to cost and whether it will be worth what the community is going to get back from it. Can you shed any light on those figures?
Mr O’Reilly:
The point about wider public understanding of the figures is self-evidently very important. Unfortunately, because of the complexities of this case, which we have already discussed, the figures are not necessarily straightforward. One reason for that, which you have mentioned, is that the figures are given in ranges. That is because the process of compiling those figures has not reached a conclusion, and therefore the figures are necessarily uncertain.
The NPC is an econometric calculation of the cost of the project to the overall economy, and takes account of both public- and private-sector benefits and disbenefits. Those are calculated together to provide the figure that is quoted. That figure is used mainly to advise Ministers on the overall viability of the project from a financial and economic perspective. However, as we have discussed, Ministers can and will take account of other factors before reaching decisions on any particular project.
The two key figures are those that are quoted for the cost of the project to 2014-15 — £307 million and £379 million. The difference between those figures concerns whether the project ends up on-balance-sheet or off-balance-sheet. If it ends up on-balance-sheet it becomes part of the public-sector estate, and therefore incurs some additional costs to the public sector. If it ends up off-balance-sheet — that is, under the control of a body or bodies outside the public sector — there will be fewer charges on the public purse, which is why that figure is lower.
There was also a much higher figure quoted in the media, but that referred to the cost of the project over a 30-year life. One could add any number of years and come up with any figure, but it is best to benchmark to the immediate upfront costs, which are the figures referring to 2014-15.
Mr Brennan:
There is understandable confusion about numbers, because there are three complex issues at play. One set of numbers refers to the public-expenditure costs to the Government. Another set of numbers — the NPC numbers — relates to the cost to the economy, and a third level of confusion is generated by the issue of whether the project is on or off the Government’s balance sheet. The business cases focus on the cost to the economy — the NPC — and those figures range from £150 million to £190 million. Those figures reflect the total impact on both the private sector and the public sector. They factor in and allow for, for example, any financial contributions that a private developer would make to the development proposal.
The reason for the difference between £307 million and £379 million is the accounting treatment — whether the project is to be on-balance-sheet or off-balance-sheet. If it is on-balance-sheet, the Government is then responsible, and has to make provision, for depreciation and cost-of-capital charges. That accounts for the difference in those figures. The figure of £700 million that has been quoted in the media is the cost of the project over the 30-year lifespan of the asset.
The figure that the accounting officers are focusing on, and on which they will make their judgement call, is the NPC. That ranges from £150 million to £190 million. Another number that is of interest is the actual construction cost of the stadium. Again, we have given a range, because there are complications around things known as land assembly charges. However, the net construction costs for the stadium itself, as opposed to the conflict transformation centre and the infrastructure, lies between £160 million and £180 million. That is the net figure, after any potential private developer has made a contribution to building the 38,000-seater stadium.
Mr O’Loan:
I welcome what you have said, including your point that you do not regard the single-page summary as the best way to look at this. It is important to get that message across.
My reading of what you say is that extracting simplistic conclusions from this would be incorrect. It would be an absurd reading of the documentation to conclude that OFMDFM considers, reflecting the views of the two accounting officers, that this project does not represent value for money and that therefore we should walk away from it. If I am wrong, the Committee most certainly should be told that. When I read the document, I find that a much more nuanced presentation is given than is present in the single-page summary.
The opinion of the two accounting officers is that they cannot make an assertion that this represents value for money. The costs are quantified within the ranges that you have talked about. The report makes reference to other, non-quantified benefits, and there is some discussion of them. It is my understanding that, sometimes, benefits that are thus far unquantified can be costed, if further work is done. However, in general, there might be other benefits which one cannot always cost. It then comes down to a political judgement as to whether there is sufficient benefit to outweigh the sum total cost. It is important, therefore, that one does not come to the simple conclusion that this does not represent value for money. That is not the whole story: as you have said, there are other benefits to be had.
In a later section of the report, you discuss the jobs issue and the lack of quantification in that respect — I do not mean the number of jobs; you refer to a lack of defence around that. That must surely be the case in almost every economic appraisal that is carried out. Take a simpler example: a local council assessing the building of a leisure centre. The council calculates the costs and finds, invariably, that the leisure centre will lose money. However, the council does not decide against constructing the leisure centre. Rather, it decides that the benefits of providing a leisure centre and that service to the community are such that it is worth doing. I do not think that any financial appraisal of that would ever come out with a negative NPC: there will always be a cost involved. Therefore, I am surprised that the conclusions are not simply that more work is needed to quantify certain things or to spell out in more detail the benefits that cannot be expressed in pounds, shillings and pence.
Mr O’Reilly:
That is not always the case. Often, projects have a positive net present benefit when the work is done. Sometimes, a project can have a net present cost but, in my experience, it is usually marginal. The major difference with this project, and what makes it very difficult for an accounting officer to reach a conclusion on value-for-money and financial and economic grounds, is the scale of the NPC.
Ultimately, as you rightly said, the judgement is a political one. It is a judgement of whether some of the unquantified or unquantifiable benefits — for example, in relation to a shared future — merit that level of cost to the public purse and to the economy.
Mr Brennan:
It is possible for projects to proceed with an NPC. However, in our experience, they tend to be marginal. That is when the accounting officer tends to leave it to the Minister’s discretion to allow those projects to proceed. However, in this case, the NPC is quite substantial, which is where the difficulties emerge.
You asked how we factor in the non-quantifiable benefits, such as the shared future benefits, and used the example of a leisure centre. Yes, the NPC for a leisure centre could be negative. However, the non-quantifiable benefits would be easy to describe — participation in sporting activity within the centre could generate health benefits. One would be able to detail what the non-quantifiable benefits are. There are methodologies — benchmarking and scorecard approaches — that could be employed. They do not allow you to express the benefits in monetary terms, but they enable them to be detailed and listed.
In this case, for example, one could set out the extent to which shared future benefits through cross-community participation in sports are envisaged as taking place. However, those benefits were not presented to the accounting officers when they were considering their views on the NPC figures.
The Chairperson:
Why not?
Mr Layberry:
The leisure centre example is very interesting, because it homes in on the process. Our paper was intended to home in on the process, not the outcome. It simply said that there is a process laid down in Government accounting whereby I, like Mr O’Reilly, find it difficult to imagine how any accounting officer in the Civil Service would be able to make a decision on a project with an NPC of this size. With the wider benefits not being quantified, I find it hard to imagine how an accounting officer could claim that this is a value-for-money project.
The example of the leisure centre demonstrates that: the decision to proceed with the project would not be taken by the chief executive of the council, but by the elected representatives. That decision would probably be made on the basis of information from the chief executive that the project was extremely expensive and had a large NPC. However, the decision on whether to proceed would still be made by the council.
Mr O’Loan:
That is all very helpful, as long as it is widely understood that that is the process in which we are engaged — that cannot be overstated. I referred to your criticism of the lack of quantification of some of the benefits in the report. It is, therefore, reasonable to ask for more information. As a specific example, your critique of the employment figures was that anybody can talk about the benefits of employment to the region — the net employment gain is quoted as 4,121 jobs — but that there was no independent analysis of that. It would be perfectly reasonable to ask for some independent analysis of that figure.
Paragraph 9 of your analysis states that the stadium proposal is “inextricably linked” to the overall MLK development proposal, and that it is:
“fundamental to the overall proposal’s success or failure”.
That strikes me as an extremely important point. As currently conceived, the MLK proposal hinges inextricably on the stadium. Do you have any comment to make about that?
Mr O’Reilly:
I do not have anything to add to what was said. The key words that you used were “as currently conceived”. The present proposal is fundamentally based on the stadium.
Mr Layberry:
That is right.
Mr O’Loan:
There is an OFMDFM paper in the public arena that is much more positive about the whole scheme than yours. That paper, as a whole, is not in the public arena, but there has been media coverage of it. According to the BBC News website, it says that:
“‘ministers should be aware of the implications of allowing the procurement to lapse without a clear decision’ or of ‘turning down without full consideration of more detailed information from the bidder a potentially viable deal’”.
Furthermore, during Question Time on Monday, the deputy First Minister told Mr Butler that:
“To date, there has been no assessment of the cost of building new stadia to meet the needs of football, rugby and Gaelic games. However, the outline business case for the multi-sports stadium estimates that enhancing those sports’ existing facilities to an acceptable standard would require between £86 million and £95 million, excluding infrastructure costs. Upgrading existing stadia would not meet the strategic needs of the three sports and would be subject to considerable planning and infrastructural constraints.” — [Official Report, Vol 32, No 1, p24, col 1].
In assessing the Maze project, particularly the stadium, surely it is absolutely essential to consider the alternatives. The cost of the alternatives, and the strategic ability to meet the needs of the three sports involved, must be part of the decision-making process on the Maze development.
Mr O’Reilly:
At the risk of being accused of being evasive, I should say that it would not be appropriate for us to comment on media reports relating to a document that we have not seen and that has not been given to us to analyse or comment on.
Mr O’Loan:
It is significant that DFP is commenting on the proposal without having had sight of a 20-page document that is key to OFMDFM’s thinking on the matter.
Mr Weir:
You have not had sight of the 20-page document either, but that has not stopped you from commenting on it.
Mr O’Loan:
I read what appears in the media.
Mr O’Reilly:
I can only assume that if OFMDFM felt that the document was significant, it would have given it to us to consider.
The Chairperson:
The cost of the alternatives has to be factored into any value-for-money discussion. We have not seen the document and you have not seen the document. The bald point is that if the Maze project is not to be proceeded with, we need to know the cost of the alternatives.
Mr O’Reilly:
Obviously, if an exercise is initiated to provide an in-depth analysis of the alternatives to a particular proposal — for example, the provision of sports stadia at different locations — the cost of those alternatives must be taken into account and compared with that of building a stadium —
The Chairperson:
There is an obvious question to be asked as a follow-up to that point, and I presume Declan is about to ask it. Why did your Department not take the costs of the alternatives into account?
Mr O’Reilly:
It is not our role to do that. That is the responsibility of the Department that initiates the proposals. The Department of Culture, Arts and Leisure (DCAL) has a responsibility for the provision of sports facilities. Therefore, DCAL has the lead responsibility in introducing and formulating proposals and working with their Minister on the relevant issues. Our Department would not formulate the proposals for the Maze project any more than we would for the building of a hospital.
The Chairperson:
I understand that. However, your Department was faced with a deficit of information. Why did your Department not identify that deficit?
Mr O’Reilly:
Our paper identifies the times when we received various pieces of information. We engaged in correspondence with the relevant Departments in an attempt to clarify those various pieces of information. Indeed, we received subsequent and further information from both Departments on the basis of the initial outline business cases that we had received. We did not merely receive the information and say nothing.
Mr O’Loan:
It is very important, and I have no doubt that DFP officials are capable of telling the other two Departments that, when formulating a final decision on this matter, it will be essential to consider the cost and the practicalities of the alternatives and whether they would provide a successful outcome. I can leave that as a comment, unless you wish to respond.
Mr Layberry:
The key point is that the outline business case puts on the table a preferred option, which we have analysed. All of the detail relates to that preferred option.
Mr O’Loan:
I remain of the view that common sense dictates that the Executive must look ahead and consider whether, if they were to reject the Maze proposal, the alternative options for providing adequate stadia for the three sports would cost even more, or would be unable to provide a successful solution. Surely, it would be rather late in the day to begin examining alternatives after the event. It must be looked at as a whole.
Mr Beggs:
On page 6 of the briefing paper from DFP, we are advised that, in December 2007, the OFMDFM consultants estimated that the cost would be between £156 million and £193 million, but that, following further work, they estimate that it will cost £254 million. How on earth can costs change so dramatically in six months?
Mr Brennan:
As I understand it, the consultants from Deloitte, who produced the material for OFMDFM, uncovered an error in their methodology — in their spreadsheets — that had underestimated the costs.
Mr Beggs:
An error in a spreadsheet? I could understand if a student had made such a mistake in their preparatory work. However, I cannot believe that a spreadsheet error was not picked up earlier by the consultants. That is unbelievable.
I am not an accountant, but I understand the difference between costs on the balance sheet and off the balance sheet. How does one go from the consultants’ estimate of £254 million to an on-balance-sheet cost of £379 million? What causes the difference between those two figures?
Mr Brennan:
The £254 million figure, which includes Deloitte’s £60 million adjustment, is an NPC — that is the actual cost to the economy. The £379 million is the net resource cost to public expenditure going forward to 2014-15. The NPC examines costs and benefits over the lifetime of the project.
Mr Beggs:
I appreciate that, thank you.
Calculations for the proportion of costs applied to the infrastructure changed from 40% to 67%. That is a huge change. Large infrastructural costs were always going to be associated with the project, so why was a figure not agreed much earlier?
Mr O’Reilly:
We have been asking the same questions. We too are very concerned that the two Departments have produced reports that have such significantly different apportionment of infrastructure costs. We have encouraged them to agree a position. As you rightly said, it is a major issue. It does not affect the overall cost analysis of the whole site, because the infrastructure costs would be incurred anyway. However, the amount of that cost that one attributes to the stadium per se affects that figure. In the past few months, we have encouraged the participants to agree a set of figures, but, unfortunately, we have not managed that. That is why we quoted both figures.
Mr Brennan:
That is exactly why we quote a range of figures for the NPC. Following detailed scrutiny, we discovered that DCAL employed PricewaterhouseCoopers to do the business case for the stadium, and it apportioned 40% of the infrastructure costs of the whole MLK development to the stadium. Deloitte was employed by OFMDFM to examine the wider MLK master plan, and it apportioned 67% of the infrastructure costs to the stadium. Therefore, there was automatically a difference between the two Departments on how much of the infrastructure costs should go to the stadium.
However, when we got deeper into the matter, we realised that it was not a material issue, for two reasons. First, the infrastructure costs have to be paid for anyway within the total MLK development. Therefore, all we are talking about is moving the costs, to a greater or lesser extent, to the stadium and away from the other areas of the MLK development.
Even the PricewaterhouseCoopers work showed a substantial NPC on the 40% assumption — about £37 million — and Deloitte apportioned infrastructure costs at 67%. If you put that to the PricewaterhouseCoopers costs for the stadium, it takes the NPC up to £110 million for the stadium alone. However, as I said earlier, that is why I focus very much on the NPC of £153 million to £196 million for the wider MLK development.
The apportionment of costs was an issue. It is difficult to understand how two sets of consultants came up with radically different apportionments of costs, but the totality of infrastructure costs must be paid for anyway, and it is not a material issue when you agree to use the concept of a range.
Mr Beggs:
Do the infrastructure estimates include a railway spur?
Mr Brennan:
I am unsure of the detail of that, but I do not think that they do.
Mr Layberry:
No, it is not included.
Mr Beggs:
From media coverage, I do not think that a railway spur is included in the estimates. Should it not be included? I have visited a few large stadiums. Wembley works because there is a fantastic Tube station beside it, with lots of trains to take people away. Lansdowne Road and the Millennium Stadium in Cardiff work because there are lots of activities in the immediate surroundings, and the crowds can soak away, but this development has neither of those facilities.
The accounting officers have both given their recommendations. Have the Ministers given directives that they want it to proceed to DFP, and is the next stage approval by DFP? What is the process of moving it to DFP without the accounting officers’ recommendation? Have the Ministers concerned recommended it, or indicated that they would be content to go with a ministerial directive?
Mr O’Reilly:
I am not being pedantic, but it is more appropriate to describe the accounting officers’ views as conclusions than recommendations. Self-evidently, the final decisions rest with Ministers and, ultimately, with the Executive. As I understand it, the matter is now with OFMDFM, which will decide when to send a paper to the Executive Committee on it. It will take the lead in that.
Mr Beggs:
One issue that I have not picked up from your paper is the value of the land itself. We are simply considering the cost of the development to the public purse, but, as with any public asset, there is an opportunity cost. We have considered the cost to the public of developing the land in a certain way, but is there a cost estimate of the value of that land for alternative uses, such as being sold to the public sector, being developed for houses, hotels, or industrial development, or being the new site for the Royal Ulster Agricultural Society? Surely 356 acres of land has a value. Has there been an estimate of that value? A few years ago, development land was valued at about £1 million an acre.
Mr O’Reilly:
I will ask my colleagues, again, to comment in more detail on the valuation issues. As members know, part of the proposal that is on the table would involve the transfer of most of the site. The precise figure work is uncertain because of the detail, but it would involve transferring approximately 300 of the 360 acres to a private-sector development partner, leaving the remaining 60 acres for the stadium, etc.
Mr Beggs:
The real cost of the proposal, therefore, also includes the loss of 300 acres of publicly owned land?
Mr O’Reilly:
Yes; my colleagues can elaborate. Just to finish my point, it is proposed that 300 acres of the land would be transferred to the private-sector development partner. The benefit that we get from that would be somewhere between £50 million and £55 million contribution towards the cost of the construction of the stadium.
Mr Beggs:
Can you provide an estimated value of that land? If that master plan is to proceed, we will need to know what the loss of alternative opportunities and additional investments for the land has cost the public purse.
Mr O’Reilly:
The problem with valuing anything — including land — as you know, is that it is worth what someone is willing to pay for it. One of the key issues that I wanted to highlight to the Committee this morning is the role of the planning framework in the proposal. The current proposals have been drawn up in the context of an existing planning framework for development around the Lisburn area. Effectively, the 360 acres at the Maze site are within the existing planning framework, which permits certain, but not other, types of development on the site. While the site has been earmarked for “developments of regional strategic significance” — I think that is the term used by the Planning Service — that could constrain significantly the types of development that might happen on the site.
Members will probably know that the Planning Service said that up to 200 houses could be built on the site, whereas, in theory, a lot more could be built. The key point is that the bidders for the project had to formulate their bids on the basis of the significant planning uncertainty around the site. They will factor that uncertainty into the amount of money that they are prepared to pay for access to the 300 acres. To take an extreme case, if the 300 acres had full planning permission, we would rightly expect hundreds of millions of pounds payment from a private-sector development. However, because there is major and significant uncertainty around the planning issue, the amount of money that is being offered is relatively small.
A key point that has come out of this for me over the last couple of months, and having spent a lot of time on it, is that it is probably going to be difficult to get a good and proper deal out of this until the planning uncertainty around the future of the site is removed.
Mr Beggs:
Would it not be better — and in the public interest — if outline planning permission, at least, were obtained beforehand so that the bids could be more realistic? This has the potential to be a huge profit spinner for the companies that are bidding.
Mr O’Reilly:
As the Committee will know, there is a statutory context to any planning framework. The planning uncertainty might be dealt with through the existing planning framework, or, conceivably, through special legislation to designate the site for special purposes in order — I do not want to say “get around” the legislation — to ensure that the planning constraints are not such a difficulty in the future.
Mr Beggs:
I am trying to get some assessment of the value of the land. Three hundred acres could be worth as much as a few hundred million pounds.
Mr O’Reilly:
At least.
Mr Beggs:
Would it not be prudent to carry out some mechanism of assessing the value of the land? To enable anyone to do that, outline planning permission, at least, would be needed. That would be a prudent way to proceed and ensure that the opportunity cost of that land is taken into consideration in any overall decision. There are alternative uses for the land. Has DFP been made aware of what those alternative uses might be? Could it be regionally significant hotels or new industrial development? Are there any other alternative uses for that land that would meet the current planning criteria?
Mr O’Reilly:
I will bring in my colleagues to discuss that. However, in summary, paragraphs 19 to 23 of our paper are lifted directly from the planning status document that we in turn received from the Departments concerned, and which in turn had been provided to them by the Planning Service. As you see it, that document more or less spells out that the piece of land concerned currently falls squarely within existing planning and regional development frameworks.
There is a further uncertainty about the draft Belfast metropolitan area plan (BMAP), which in turn is out for consultation. As a commentator, and having examined the document in some detail, I feel that with this type of planning framework it will be very difficult to obtain a proper and good deal for both the private sector and the public sector from this development.
Mr Weir:
I appreciate where Roy is coming from. Presumably the flip side of outline planning permission is that if it refused, the land becomes worth only a fraction of its value. That is where the balance must be struck. I can understand that, as you said, there are gaps in the apportionment of costs, but it is a question of whether certain costs are put under certain headings. It does not change the overall landscape of the financial proposal. Furthermore, I would be wary of using selective quotes from a document that none of us have seen, and which may or may not reflect the full context of the document. Even the worst films seem to have great quotes in their trailers. I just wanted to clarify that.
Mr F McCann:
It can also have an impact on the way in which people look at the project.
Mr Weir:
It could well do, but to be fair to the officials, anything that was put into the document was there to support the case. Deloitte and PriceWaterhouseCoopers (PwC) made the two business cases. Am I right to assume that DCAL’s business case was purely for the stadium, while OFMDFM’s case was for the full site? Your analysis was of both cases, so essentially it was for the full site. In addition to the three other elements, did you separately engage the Civil service chief economist? Was that done in isolation from the technical side of things? What was the procedure in that case?
Mr Brennan:
As the chief economist, I have been involved in this project from an early stage. However, I also have economists embedded in DCAL and OFMFDM. I deliberately kept myself removed from them when they were carrying out their assessments and providing advice to their accounting officers. When the papers were formally presented to DFP, I could then assess the methodologies that the two sets of economists had employed.
At the back of my mind I was always worried about discrepancies in methodologies and information breakdown. Therefore, I brought the economists together so that we were all singing from the same hymn sheet in our understanding of the mechanics of the two business cases and how the numbers — the NPCs — were derived, and the public expenditure consequences. That is why, when I was able to form a view, that it was the collective view of all the NICS economists engaged in the exercise.
Mr Weir:
I appreciate the constraints that you are under. Nevertheless, it will be useful to have a ballpark figure of opportunity costs, because the nature of the beast is that the figures cover a wide range. There are the original costs plus the opportunity costs. I appreciate that it is in the nature of these things that costs fluctuate wildly.
To pick up on Jennifer’s point about jobs, the figure given for employment gain is 4,121 jobs. Clearly, that very precise figure is a net figure. While the project will create a number of new jobs, there is obviously an assumption that some jobs will be relocated, sucking away employment from other areas. What is the source of that figure of 4,121? Is it from one of the economic appraisals, or has it come form several sources? Is that the most optimistic figure?
Mr Brennan:
The figure of 4,121 comes from the economic appraisal, and you are right, it is a net amount. A gross figure of just over 5,000 was included in the appraisal. That 1,000 of a difference is due to jobs being displaced from elsewhere in Northern Ireland. That figure of 4,121 is for net employment gain as a result of the MLK proposal. Just over 3,000 of those jobs would be based on site, while the other 1,000 would be based in wider areas, for example, Lisburn. Thus, there would be feeder employment as a result of the MLK proposal.
The business case does not qualify what type of jobs would be created. For example, would those jobs be consistent with the value-added jobs that the Programme for Government aims to create? Jack might go into more detail on this matter, but I understand that DETI and Invest NI have not yet formed a view on the nature or the quality of those jobs.
Mr Weir:
There have been two economic appraisals, and DFP has carried out a wider analysis. Does that figure of 4,121 come purely from the overall picture from OFMDFM? Do the two appraisals agree on the number of jobs that would be created?
Mr Brennan:
There is a consistency there.
Mr Weir:
So there is not much of a gap between the two appraisals in that regard. There was talk earlier of best-case scenarios — is that figure of 4,121 a best-case scenario?
Mr Brennan:
We do not have a problem with the methodology used to arrive at those figures. Those figures seem quite robust. We have challenged the numbers, and the responses that we have received we can stand over.
Mr Weir:
Presumably, by the same token, there may be a little variation. However, are you saying that 4,121 is very much a ballpark figure, whereas the figure of 10, 000 jobs is highly speculative?
Mr Layberry:
Paragraph 37 of the paper is key. The outline business case identifies DETI and Invest NI as the key stakeholders as regards employment prospects, but they have not been asked to review or confirm those jobs. Thus, we have no information on the quality of employment in terms of skills and earnings levels, how quickly the employment projections would be achieved or how long those jobs would last. Invest NI has not been asked to provide that information. Certainly, it is something that we queried with the Departments, but we have not received a response.
Mr Weir:
So we do not know whether some of those jobs could be high-tech and industrial, or how many would involve 16-year-olds making burger and fries?
Mr Layberry:
That is correct.
Mr F McCann:
We are dealing with a lot of “don’t knows” and ifs and buts. From what we hear this morning, the thing is seriously flawed.
To pick up on a point that Roy had made, there are a number of examples in England and across Europe of stadia that have successfully moved from city-centre locations to elsewhere. In England, Manchester City left its Maine Road ground and moved further out. The Manchester Velodrome is nearby, and a cluster of sports facilities are based in and around the stadium, which have had an impact as schools of excellence. The building of that stadium has also been a lever for economic development in the general vicinity. Some of the comments that have been made remind me of a time 14 or 15 years ago, when Belfast City Council took the decision to build a conference and concert hall. Many people severely criticised that plan, saying that it would not work and would be a waste of ratepayers’ money. The hall cost the council £2 million a year. However, the money that the council receives from rates offsets that.
It has been said that that development was the catalyst for the whole development of the area along the waterfront and Laganside. Although several hundred million pounds was spent, over £1 billion was generated through the economic development of the area.
Something that is lacking here in any shape or form is a centre of excellence that could incorporate a number of sports — gymnastics, cycling, and so on. Currently, people have to travel a fair distance to participate in such sports. The Maze site offers the opportunity to build a multi-sports complex.
The peace process has been studied by countries throughout the world that are engaged in similar processes. A centre for conflict transformation could offer help, hope and goodwill to those countries.
Had Belfast City Council not taken risks on many projects that were heavily criticised at the time, particularly the development of Laganside, we would not be reaping the benefits today. We have to look five to 10 years into the future at the possible benefits. Has that been considered?
I know that there have been two processes: one that considered the stadium and the centre for conflict transformation and the other that addressed the issue of the site. Was there a process that considered both issues to investigate what economic benefits could be generated by a stadium and a centre for conflict transformation?
Mr Brennan:
The economic appraisal of the MLK site incorporated the ICCT project. Therefore, any direct and indirect costs and benefits that could be attributed to the ICCT would have been factored into that business case.
The point you make about the long-term and wider benefits that may be generated by the stadium and the ICCT takes us back directly to Mr O’Loan’s point about being able to factor in as many of the non-quantifiable benefits as possible. Any long-term benefits — for example, improved health as a result of sporting excellence at the stadium or increased tourist numbers visiting the ICCT — would have been factored into the economic appraisal.
Mr O’Reilly:
The more general point that has been made, which is valid, is that inevitably, it can be difficult — looking into the future — to make precise forecasts as to the success or otherwise of particular types of investments. The examples that were quoted proved to be successful in generating further and wider benefits. It is difficult to make a rational and reasonable assessment of what those benefits might be in the future.
You mentioned the success of Laganside. Laganside Corporation was set up with a specific statutory authority and planning framework for the development of the whole area around the Lagan, which enabled it to undertake specific projects and encourage certain developments. To go back to my planning point, such a framework is not yet in place for the Maze site.
Mr F McCann:
It is also true to say that there is a belief that the planning framework will change dramatically. Some people believe that the planning process should work for development, rather than working against it as is currently the case. I do not see anything in the briefing paper to suggest that the site has been considered in its totality.
The point that I made earlier about Laganside is that the Waterfront Hall was seen as a catalyst and a watershed for the development of the whole waterfront area. We have an opportunity to look 15 or 20 years into the future. If that had not been done previously in Belfast, we may not have had Laganside or much of the development that has gone on there.
Mr O’Reilly:
I stress that, and without unduly criticising it, the Planning Service has to operate within its existing statutory framework of area planning for a particular region. Until that is adjusted — as has happened with the Laganside Corporation — it can be very difficult to enable further development of a particular site to proceed and to generate the benefits that you have identified.
Mr F McCann:
I was in Dublin two weeks ago and visited the Docklands area. In that area of Dublin the entire process of planning was changed. Some people had a vision of what the Docklands could look like while others were very critical of the planned development. However, the project has been a complete success. That is the type of vision that we should bring to this process.
I have one last question. The former DCAL Minister has said that there was “hostility at senior Civil Service level” in relation to this project ever going ahead. I know that you will probably not comment on that.
Mr O’Reilly:
It would be inappropriate for me to comment on that.
Ms J McCann:
It seems to me that there is an acceptance here — even among yourselves — that all the information required is not currently within your gift. Therefore, the paper was written in the absence of certain pieces of important information. Is that correct?
Mr O’Reilly:
Yes. The paper was written on the basis of information received between December 2007 and January 2008 and on subsequent further clarification that we sought from the two Departments. As I stressed earlier, we did not just accept the information and close the door. We identified missing information, unclear information and information that needed to be clarified, such as the apportionment issue that I mentioned and the jobs issue, and we sought clarification.
Ms J McCann:
Do you accept that those pieces of information could be important? For example, there is no analysis from Invest NI on the number of jobs. There is no clarity, and there other social and economic factors that need to be considered. Do you not agree that, in the absence of that information, it cannot be an objective review at this stage?
Mr O’Reilly:
It is as objective as I believe we can make it, based on the information that we have received and sought and the responses received to date.
Ms J McCann:
Do you accept that there is important information that has not been factored into this review?
Mr O’Reilly:
That presumes that there is other information available that has not been given to us.
Ms J McCann:
It says in the paper that there is information from Invest NI that you do not have. That would be important information in relation to employment.
Mr O’Reilly:
We have asked for that to be provided, but it has not been provided yet.
Ms J McCann:
The leverage of other economic benefits, such as sporting and social benefits, has not been factored in either.
Mr O’Reilly:
We have based the report on the information provided to us. As I said earlier, we presumed that the Departments putting forward the case would want to present the best possible package of information. If I were in one of those Departments, I would certainly want to ensure that every possible piece of information was put together.
Ms J McCann:
Therefore, the report does not express an objective view, even around the value-for-money case. That information is not there.
Mr O’Reilly:
It is your use of the term “objective”. The report is based upon the information with which we were provided. That information could be incomplete, insufficient or wrong. Indeed, it could be any of those things.
We have sought to do our best to clarify, as far as we could, the information that was made available. However, as I did stress at the beginning, there is to some extent still a constraint on that information, because the Departments are still in the middle of a procurement exercise. Some of those numbers will not become firm until that procurement exercise is completed.
Ms J McCann:
I have a major concern about the point made in the summary which states:
“The … analysis concurs with the conclusion already reached by the two Departmental Accounting Officers that the proposal does not offer value for money.”
I do not believe that enough information has been collated in order to make that assumption.
The Chairperson:
I also have concerns about that point. The Department has a key role in interpreting and implementing the Programme for Government. There is a certain priority attached to growing the economy.
The headline is that two accounting officers of the respective Departments have concluded that this does not represent good value for money, and DFP concurs with that assessment. However, we find that they were both working on two different business cases — why were they not working on one? We find that there are unreconciled conclusions, a kind of subtext, in apportioning infrastructural costs, and that there was some confusion about, or mistakes made in, the methodology.
I know that there are politics involved, and I am not inviting you to get involved in all of that. From a straightforward business proposition, you have identified very clearly, Leo, that if the planning issue were addressed in a more businesslike fashion, the numbers would be dramatically affected and would certainly provide clarity regarding timelines and developing proposals, etc. In relation to the Programme for Government and growing the economy, why is that not being addressed? Why are the benefits of addressing it not taken into account? We have the example of Laganside.
There are things that we can do; there are options with regard to the agreed Programme for Government. Are politics getting in the way of the Department being able to spell out the obvious options available to the Executive to move forward? There are social benefits — unquantified benefits — attached to a stadium that encompasses the three codes. There are no available alternative options at all. That is of huge significance in terms of the message that we send out of this place. This is about the benefits not just economically, which I think are fantastic, but socially. This is society trying to heal itself. Why are those options not included in any value-for-money option? The cost of not addressing those issues is clearly very significant. Is this a sloppy exercise because we are in the middle of a political maelstrom, and the Departments are bobbing about like corks in the water?
Mr O’Reilly:
Some of the points you make are obviously of political importance.
The Chairperson:
I understand that you cannot go there.
Mr O’Reilly:
The process that we are in is the outworking of one that was initiated, not by the Northern Ireland Executive, but by direct rule Ministers. To some extent, the Northern Ireland Executive are now on the receiving end of a process that commenced before they were in power.
The points you make, like so many points that have been made around the table, are self-evidently correct and true. On your invitation to comment on the overall nature and quality of the material, it would have been good had there been steps toward putting in place a special planning framework around the development of this site. That would have enabled everyone who is proposing to invest, including the public bodies who are proposing to spend money, to know exactly what the constraints would be. At the moment, there is vast uncertainty.
That knocks on to the nature of the procurement, which, as you know, was through a private sector development partner. That can offer enormous benefits, but those benefits are severely constrained if that partner, like everyone else, does not know what the planning framework on the site is going to be in five years’ time.
That in turn makes the procurement process very difficult.
Thirdly, the point was made that two different Departments are involved. Self-evidently, that has led to some discontinuity in approach. The best example of that is the difference in the attribution of infrastructure costs. We must also address the issue of co-ordinated action to take forward development of the site in a way that overcomes the difficulties of having several Departments involved in the process.
The Chairperson:
I am conscious of two things; first, that you have run out of time, Mr O’Reilly.
Mr O’Reilly:
My colleagues will continue to answer questions.
The Chairperson:
Secondly, I am aware that there is a danger of your being drawn into issues that are not proper for you to discuss. I will not allow that to happen, but the Committee has to be satisfied that the process reflects an Executive that are joined-up in their thinking, and that the Programme for Government and its priorities mean something.
For example, we might look at a planning issue, which might change the figures. The estimated benefit of the project of £55 million might possibly be multiplied by a factor five or six, depending on market conditions. That eventuality is not highlighted as an obvious and viable option, yet we are drawing conclusions. The headline, as far as the ordinary punter is concerned, is that the two accounting officers turned the project down and that DFP agreed with them. Is that being risk averse or not? What is happening? Is the issue being considered in a strictly objective manner? You are staring in the face of obvious solutions to the problems. Why are those solutions not being presented?
Mr O’Reilly:
I know for certain that Ministers are aware of the difficulties and of the constraints that have been put on the project as a result of various factors.
The Chairperson:
I invite you to accept that it is within your challenge function to point out that options do not seem to be on the table.
Mr O’Reilly:
Again, I stress that DFP has a particular role in the process. It is not our role to proactively draw up plans for the development of sites. That is not our responsibility, and neither do we have the power to do so. We can say to Departments, from the information presented, that a project looks to be unsatisfactory or that there are gaps and inconsistencies. We could say that there is a lot of information; that it could be presented in a better way, or that is not available.
The Chairperson:
What about a shared future or growing the economy?
Mr O’Reilly:
If I may stray beyond my remit a little: it is totally irritating and unsatisfactory that we have been given a set of figures on jobs to analyse. We have raised concerns because of the lack of apparent involvement of investors and DETI in the analysis process. The media are talking about 10,000 jobs. However, no one has given DFP that information; and understandably, because it is in the media, people want to ask us questions about it.
Mr F McCann:
It is not beyond the bounds of possibility that the project could create 10,000 jobs.
The Chairperson:
The point is that it has not been quantified.
Mr F McCann:
People are looking at the number of jobs, and different figures are being quoted.
The Chairperson:
We are just saying that the evidence for the number of jobs that have been quoted has not been substantiated. We want to see the evidence.
Thank you very much, Leo, and your colleagues, for your assistance.