Paul Murphy Challenges Outsourcing of Public Building Maintenance

Thanks for the presentation. Just to return to the measured term maintenance contracts, in simple terms, what this is, is the effective outsourcing of the maintenance of public buildings to private companies. Is that a fair description in terms of what we're paying for? We use contractors all over the country for building purposes, deputy, and maintenance purposes. We don't have the workforce to do all the work ourselves. We find it more efficacious and effective to contract a lot of work out. You can scale up and scale down as need arises. So we have regional contracts to do building works around the country and maintenance. This is a Dublin-focused contract. As you know, we have a lot of buildings in Dublin which require constant intervention and constant maintenance. We need to be able to react quickly and scale it up and down with contracts. We find it an effective way to do it. And the October 2018, you're saying there was two contractors involved. Is that two contracts or one contract between them? We've split Dublin into north and south. So one contract is Dublin north and one does Dublin south. And tender separately for the two? We tender both at the one time, but in two different areas. And how many companies tendered for the contracts? For that contract, I think it was three companies tendered. No, we have a new contract. Three companies tendered for two contracts? For two areas. Did all three apply for the two? I think so, but I'd have to check that. No, we have re-tendered it again and we are now assessing a new tender, which is a higher number of contractors tendering, thankfully. Okay. And it's been publicly reported, I think the north Dublin one at that time was PJ Hegarty and the south Dublin is Censori. Correct. And you earlier were asked about, you know, this had an anticipated value of 20 million euros, it ended up with expenditure of over 125 million euros, and you were saying that, effectively, this is accounted for by the extra expenditure due to Brexit, in particular at Dublin. By and large. How much was the expenditure related to Brexit? I'd have to check that figure, but it was a substantial amount, but I can check that for you, Deputy. So, previously, the PAC was said it was 71 million, would that be accurate? It was in the region, I was going to say 75, but I did double check it. Okay. So, if we strip out the 71 million or 75 million, whatever we have, we still have expenditure of 50 million in a contract that was due to be 20 million. So, do you not accept there's still a problem there? I do accept that we overspent on that contract, which is why we subsequently re-tendered it in 2022, and we re-tendered it again. And I think, and I wasn't chairman at the time, but the level set at 20 million was probably too low for the volume of work that was coming at us, and we should have assessed that to be a higher amount. And so, that was then fixed for the next contract? Yes, and we're now re-tending it again, and we've put in a far higher figure because of the volume of work we're doing. Just for the next contract, which I think commenced in May 2022, that was an anticipated value of 40 million, but the total expenditure was 50 million. So, once more, we anticipated a certain value, and we ended up spending significantly more. And this is a reactive contract, Deputy. So, we react to requested works for a wide range of buildings across the country. Sometimes that's hard to assess in advance, and that's why it came in a slightly move above. It's also why we're returning now again, and we will be putting the higher values in with a better assessment of the works we think will come at us over the next number of years. And in terms of the new... A lot of the buildings in Dublin, Deputy, are very, very old. Sure, but... Sometimes they can be more expensive. But that's not new information. When you contract, when you put out the tender back in October 2018, you know how old your businesses are. The same goes in May 2022, the same goes in terms of... No, but then we did have... Recently. It seems very lucrative contracts for the companies. Well, you do have construction inflation. Over that period, we had a lot of construction inflation as well, supply chain issues, and all which drove costs as well, Deputy. And do you know how many companies have tendered for the most recent contract? I understand there's five, Deputy. And is that one or two again? Is that two? Two areas. Is that North Dublin? Two areas, yeah. Again, so five for two, and again, you think all five would have tendered for both? I think so. I'd have double-checked that, but I think the word's a good interest in it. And has that contract been signed yet or awarded? No. No, we have to go to an evaluation yet. Ongoing, okay. Yeah, just to move on to the leases. I mean, I think people... Maybe I'm naive, but I think, certainly I am surprised by how much public buildings we are leasing and the expenditure on it. It's fair to say that half of all public buildings are being leased rather than owned by the state, and about 40% in terms of square footage is being leased rather than owned. And what's the total annual cost of that? I'll have to double-check on the total annual cost and get that if I can't be a Deputy. Leasing does give us flexibility, Deputy, in terms of accommodating agencies and departments. In our long-term goal would be to increase the number of state-owned properties. That is subject to getting the funding to do that, Deputy, to NDP. But, for example, this year we are buying a building in Dublin 1, which we have just completed the contract now in the region of £24 million. That will give us a payback in lease forgone of eight years. So we are trying to increase the square footage of state-owned buildings over leased buildings. And that's a good example of where we go into the market to buy, where we see good opportunities like that. So you're trying to increase the percentage that is state-owned rather than leased? Because clearly it makes more sense. But it's subject to capital funding, which is hard fought for. And over the past 20 years, what's been the trend? Have we increased the percentage that is state-owned or has it decreased? I'll have to get that figured. I don't have it too much to hand. I mean, I'd be very surprised if it isn't the case that we're leasing more now as a percentage than we were 20 years ago. Well, the civil service and state government in general has grown quite fast in the last number of years. We have to react sometimes to that demand. And we do get demands from new agencies set up, new government departments, government departments expanding. Sometimes we have to react very quickly, which means the lease is the better way of reacting. I'd like to be able to have a stock of government buildings to put people into. I don't have that. So leases are a fact of life in terms of reacting to the demands that are putting us to accommodate staff. Just from memory, when the crash happened and there was a restriction, there was actually, I think, an embargo on the purchase of buildings. Any property that was acquired had to be acquired under lease. And so I suspect the numbers would have gone up in terms of lease property. But I don't actually have the detail there. I think the figure in terms of rent is about 111 million euros. That would be rent and service charges. Maybe it's a VAT-inclusive figure. And in terms of reacting quickly, when was the lease first signed on the distiller's building? That was signed. Might as well as Ms Morrison can answer that. The agreement was reached with the landlord in 2019 and the lease commenced in 2022. The building wasn't finished when we agreed. And is the building occupied? It was substantially completed there at the end of September and the clients have started moving in straight away. They're moving in on a phased basis to ensure their own business continuity and it should be fully occupied by the end of the year. So it's over three years from the start of the lease to you buying it. But you're making the case that leasing is about moving swiftly? Depending on whether you're leasing a building that's shell in court that needs to be fitted out or whether you're leasing a building that's fully fitted out. So it can be different from case to case, Deputy. But the distiller's building, I think, is the second most expensive building that we're releasing. We're spending €10 million a year. We're committed to spend €220 million on leasing it up to July 2047. But the assessment is that this is the best line for money that we can get. Again, going back to the point of my deputy, in terms of the lack of capital funding to buy, we do enter long-term leases. These are modern, purpose-built, effective buildings from a climate perspective. This is a very, very large building which will accommodate up to 1,500 civil service and government employees. We are getting out of less effective leases, so it does provide value on that basis, Deputy. But it does meet all the requirements we need to in terms of modern, effective, climate-friendly, energy-efficient buildings. In that case, though, if that's your approach, why did you agree to lease Bishop Square with a base assessment of a B3 rating whenever the basic position is that the state shouldn't be renting buildings that are less than A3? Sometimes, Deputy, we have to accommodate civil servants in the Dublin 2 area in general. The lack of availability of A3 buildings is an issue, and sometimes we have to make the assessment that a B3 rating of less than A3, with the lack of availability of other buildings that might have a better efficiency, and on that basis, we've made the decision to occupy Bishop Square. And will we do work to bring that B3 rating up, or we'll just leave it at what it is and pay the extra costs? In state-owned buildings, we would try and bring it up. In lease buildings, we will work with the landlord over time. And do you have an estimate, overall, of how much unoccupied space we're currently renting? Unoccupied? Yes. So, how many people could we have in buildings that we don't currently have in buildings, that we're renting buildings from private companies, but we're not using them? Do we have any idea of how big that is? I think there's a distinction to be made between buildings that are vacant or part-vacant that we're renting, or buildings that we could put more people into from a desk space perspective. I think that's what you're getting at, is it? No, just purely vacant, rather than less occupied than it could be. No, our vacancy rate is very, very low. It's about 1% and 5%. It's very low. And sometimes you need that vacancy for flexibility. So, 1% to 5% of buildings that the state leases are totally empty? The effective vacancy rate in our overall portfolio is 1% for office accommodations, so it's very, very low, and that's significantly lower than our European counterparts, for example. Thank you.