Budgets for mega-projects 'outdated, do not include inflation', Minister warned

Department of Public Expenditure issues warning over major infrastructure projects

Michael McGrath was told the current public service pay deal expires at the end of this year. Photograph: Alan Betson

Michael McGrath was told the current public service pay deal expires at the end of this year. Photograph: Alan Betson

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Existing budgets may not cover the ultimate cost of mega-infrastructure projects like MetroLink, BusConnects and the M20 Limerick-Cork motorway, the Department of Public Expenditure and Reform has warned.

In a briefing note prepared for its incoming Minister Michael McGrath, officials argued that project estimates “are outdated, do not include inflation, nor do they account appropriately for risk or full project scope”.

The documents warns that “as they are liable to be overtaken by actual costs in many cases, there is a risk of undermining credibility in our infrastructure investment programme”.

The department also suggested there could be new curbs on hiring additional staff in the public service in the years ahead, as well as new efficiency targets to offset projected budget deficits.

Options, it says, included a new moratorium on recruitment other than for key front-line areas for a period of 12 months or the introduction of an employment control framework.

The department is urging a mid-term review of the National Development Plan (NDP), the overall framework for delivering tens of billions of euro worth of investment for projects around the State in the years ahead.

It argues that, following the Covid-19 crisis, “there is a need to review the overall NDP, including as regards project scheduling and prioritisation”, which will “afford government the opportunity of reappraising the NDP and resetting to better align with the changed economic and social environment”.

A review would provide “an early opportunity to replace these early costings with more realistic assessments… using updated methodology drawn from international good practice”.

Any spending overrun of these projects could prove politically toxic, as has been the case on the national children’s hospital.

Project delays

The documents also raise concerns that while savings may be achieved from the shutdown of construction on many projects during the Covid-19 crisis, other costs may arise. These would include up to €30 million a month for ex-gratia payments to contractors forced to stop work and the cost of project delays.

The department also told the Minister of the need to moderate the rapid rise in public service staff numbers seen since 2014 if overall growth in the pay bill was to be “ kept at manageable levels”.

The department said that the overall public service pay bill had been increasing by about €1 billion per year for the last number of years due to wage rises and additional numbers of State employees.

Public service staff numbers were increasing by about 9,500 per year.

“Should growth continue in 2020 and in each of the two following years in line with that seen in 2019, overall numbers would rise to c.367,000 employees in 2022, with an annual additional cost of c.€0.5 billion to €0.6 billion.

“A 2 per cent increase in pay rates would bring the overall incremental cost to approximately €1 billion.

“Keeping all sectors other than health and education at the current serving levels would reduce the impact of the increase in numbers from €0.5 billion-€0.6 billion to an amount of c.€0.3 billion.”

Employee ceilings

It said that under an employment control framework, “departments would be required to remain within current employee ceilings, and be required to reallocate or reorganise staffing in order to maintain business continuity and service delivery”.

“Options could include maintaining numbers at current levels where retiring or departing staff are replaced on a “one-out, one-in” replacement mechanism. This does not generate savings, rather it maintains current costs.”

The department also told Mr McGrath that the current public service pay deal expires at the end of this year. In the normal course of events talks on a successor deal would take place over this summer. However it warned that “in light of the impact of the Covid-19 emergency on the public finances, the timeline and options for any talks/measures in relation to public service pay will have to be carefully considered”.