WHEN IN 2005 the State bought Thornton Hall in north Dublin as the proposed site for a new prison to replace Mountjoy, it acquired the 150-acre site at the very top of the property market. Many people felt – and not least opposition parties in the Dáil – that the €30 million price paid was excessive. Later, the Comptroller and Auditor General reviewed the transaction and agreed.
The State, he considered, had paid “at least twice the market price”. Clearly, the State had failed to secure value for money. In the meantime, an additional €11 million has been spent, preparing the Thornton Hall site for construction.
However, two years of negotiations with the Leargas consortium, which was the preferred bidder to design, build and maintain the prison, have ended with a sharp disagreement on price. The Government maintains that construction of the prison has been delayed, not abandoned. The project, it suggests, will proceed; perhaps on a phased basis and perhaps on a smaller scale. The Government is promising to clarify its intentions within weeks.
Certainly, the Government can be heavily criticised for overpaying for the Thornton Hall site. But it can hardly be faulted for refusing to compound its original error by now overpaying for the cost of building the new prison. The Thornton Hall project was to be conducted and completed on a public-private partnership (PPP) basis. This arrangement facilitates partnership between the public and private sector, and enables large long-term infrastructural projects to be financed more easily by the State, as the financial cost to the exchequer can be spread over a long period.
In this case, negotiations failed because the final financial offer from the Leargas consortium to complete the prison project was significantly higher than its original quotation two years ago. Minister for Justice Dermot Ahern has said the difference amounted to “hundreds of millions of euro”. And the Government – had it accepted those terms – would have faced more criticism for doing so than it has received for paying €30 million for the site.
The economic downturn and the banking crisis have created particular difficulties for public-private partnership projects. The money to finance projects remains in short supply. It must be borrowed on wholesale money markets and at very high interest rates. Higher rates have greatly increased the cost of borrowing which for large projects such as Thornton Hall may exceed any fall in the cost of construction. In this case, Leargas, it seems, offered an insufficient reduction in construction costs to offset the increased cost of finance.
The very high cost of financing such projects may well mean that public-private partnerships are no longer an option for the State in building infrastructure at an acceptable cost to taxpayers. Mr Ahern is committed to building the new prison, but not at any price, and not before, as he has said, the Government has first provided “ a more affordable solution for the taxpayer”.