Broadband On The Run

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From top: Denis O’Brien; CEO of Granahan McCourt, the preferred bidder for the National Broadband Plan, David McCourt and former Minister for Communications Denis Naughten; tables from the Public Accounts Committee’s latest periodic report

Yesterday, the Public Accounts Committee published its latest periodic report which included a chapter on the National Broadband Plan and its meetings about the same.

In the report, the committee said it was “unacceptable” that significant changes to the National Broadband Plan –  made without a new cost/benefit analysis test being carried out – resulted in escalated costs.

The PAC is recommending that a new cost/benefit analysis test be carried out before the final contract is signed.

It also found the procurement process “may have partly deterred parties interested in tendering for the project from doing so” and has called for the Department of Public Expenditure and Reform to carry out a review of the procurement process.

PAC found…

“As of 28 March 2019, the total expenditure on the NBP since 2013 was €25.4m. The Department [of Communications] informed the committee that the majority of the spend to date had been on consultancy fees.

“The committee was informed that the value-for-money requirement of the NBP was governed by the public procurement process but consultancy fees had risen since 2014.

“The NBP was issued for tender in December 2015. However, the plan has undergone what members considered to be significant changes since it was first explored and these changes have influenced the procurement process.

“The department informed the committee that the original plan was of different scope to the NBP in its current form.

“Announced in 2014, the original scheme was to provide fibre backhaul to approximately 1,100 primary villages in rural Ireland under the assumption that commercial broadband providers would subsequently provide services from the fibre network.

“In consultation with the market, it was determined that this was unlikely and that the scheme was not “fit for purpose”. The NBP was then re-designed to provide direct broadband connections to premises in rural Ireland.

“Following the decision to change the scope of the plan, the tender for the NBP was for the provision of high-speed broadband to approximately 757,000 premises that were deemed not commercially viable by the telecommunications sector.

“These premises are based in what is known as the intervention zone.

“However, in April 2017, following a proposal from Eir, the department entered into an agreement with the company to provide broadband services to 300,000 premises in the intervention zone.

“A further 85,000 have since been added to this scheme.

“The department informed the committee that it was not in a position to decline the Eir proposal under EU State Aid rules.

“The department explained that the State can only interfere where there is market failure and no commercial operator is prepared to provide a necessary service.

“The proposal from Eir to provide broadband services to an additional 300,000 premises met all necessary criteria and was subsequently approved. 85,000 premises were subsequently added to the NBP at approximately the same time.

“Committee members questioned whether the 300,000 premises removed from the intervention zone had been the most commercially viable and whether their subsequent removal had a negative effect on the procurement process as the most attractive premises for companies planning to tender had been removed.

“The department stated that it would be a reasonable conclusion to draw that the chosen 300,000 premises were more attractive as they were effectively on spurs from other towns and villages. This would make it easier to provide them with broadband services.

“However, it couldn’t definitively state that the change in the number of premises had a detrimental effect on the tender’s attractiveness to potential bidders.

“During its engagement with the PAC, Eir informed the committee that it had faced a
decision when its fibre-to-the-cabinet investment programme, which provided high-speed broadband to 1.6m premises in suburban and urban areas, was concluding.

“Having developed a team for this project, its choice was to either continue to invest in broadband services or wait for the NBP to conclude before restarting its investments.

“The decision was made to continue its investment in broadband and the 300,000 premises chosen were the most commercially viable premises that Eir could provide with broadband services within its own €250m budget.

“The procurement process for the NBP was officially launched on 22 December 2015.

“Five bidders submitted in March 2016 and of these, three bidders qualified.

“In July 2017 an invitation was issued to the three qualifying bidders to partake in dialogue and to submit detailed solutions.

“Two bidders submitted detailed solutions in September 2017 and a further invitation issued to both to submit refined detailed solutions.

“Only one bidder submitted a refined detail solution in June – August 2018 and the final tender was submitted on 18 September 2018.

“The assessment of the final tender was on-going at the time of the committee’s meeting with the Department on 28 March 2019.

“Members expressed concern that there was only one tender left in the procurement process.

“During the course of its engagements on the matter, the committee heard from
both the department and a number of broadband providers that the nature and
requirements of the procurement process had been a factor in companies deciding either not to tender or to exit the tendering process at a later stage.

“The department explained that it would have preferred to have more than one bidder at the end of the procurement process but that it was not an unusual situation for large infrastructure projects.

“It explained that there were national and international examples and cited the UK’s
equivalent of the NBP as being a similar project that resulted in one tender at the
conclusion of the procurement process.

“During its meeting with the committee, the department stressed that it stood over the procurement process that was followed as it had to protect taxpayers’ money and ensure that the successful bidder could deliver the 25-year contract.

“It explained that the process was run as a competitive dialogue process which was provided for in the Office of Government Procurement guidelines.

“On the question of competitiveness, the department explained that the remaining tender would still be subject to the same analysis regardless of the number of submissions and that a number of scenarios, including the possibility of not proceeding, would be examined before the decision was made regarding the recommendation for the appointment of a preferred bidder.

“The department explained that its preferred course of action was to provide Cabinet with a clear recommendation on the appointment of a preferred bidder and that all implications, including the actual cost of the project, would inform the decision.

“The department also stated that until a contract was issued the procurement process was not complete.

“Ultimately the decision to issue the contract was a matter for Government but the department is responsible for performing due diligence on all options available.

“Following the completion of the evaluation by the department, the Government approved the appointment of Granahan McCourt as “preferred bidder” on 7 May 2019.

“Granahan McCourt previously owned enet, the company that operates the MANs. The
recommendation of a preferred bidder was a significant step in the procurement process.

“The committee notes that there have been several changes to the consortium awarded the status of preferred bidder status.

“Members questioned whether companies added to the membership of the consortium are subjected to a pre-qualification test during the tendering process. [Denis O’Brien joined the consortium at the eleventh hour]

“The department confirmed that all members of the consortium went through the pre-qualification test to ensure that the technical, commercial and financial capacities of the companies were there.

“On 7 May 2019, the Government also put into the public domain a number of documents related to the National Broadband Plan. Included in these were a letter from the
Secretary General of DPER, Mr Robert Watt to the Secretary General of the Department
of Communications, Climate Action and Environment dated 16 April 2019 and a Draft Memo from DPER for the Government on the National Broadband Plan dated 7 May 2019.

“In the letter of 16 April 2019, the Secretary General of DPER highlighted a number of concerns in relation to the proposed contract for the National Broadband Plan.

“These were summarised in DPER’s Draft Memo for Government as being related to:

Cost and affordability;

 Impact on the NDP and on projects forgone as a result;

 Value for money and, specifically, uncertain benefits;

 Unprecedented risk for the Exchequer; and

 Compatibility with the spatial objectives of Project Ireland 2040.

“The Draft Memo also put forward an alternative approach with strong deliverables in the short-medium term in the region of €1billion, focussing on completion of the infrastructure backbone.

“Indicative figures in 2014 for the provision of rural broadband were originally €355-512m.

“This figure referred to the original scheme to provide broadband capability to 1,100
primary villages.

“An official estimate was not published.

“Members questioned why an estimate was not published and whether that indicated that the Department was unaware of the potential final costs when the NBP went out to tender.

“The department indicated that it had estimated the costs but that it did not consider it prudent to publish costs at the time as it may have affected the level of competitiveness in the procurement process.

“When questioned on the final figure for the NBP, the department confirmed that it had not received the final evaluation and as such was not in a position to comment on the final figure.

“The department informed the committee that a CBA [cost-benefit-analysis] was carried out and explained that it had been updated on a number of occasions due to the changing nature of the National Broadband Plan.

“Members questioned whether the Department could guarantee that the NBP would be cost efficient as the estimates being reported were significantly different to the indicative figures from 2015.

“The department explained that before it submitted a recommendation to the Minister or the Government, it had to set out its assessment of how the tender represented value for money.

“It informed the Committee that a range of obligations were to be inserted in the awarded contract, that there would be post-contract governance and the costs would be regulated by ComReg.

“Members sought clarification on who was accountable for the costs and completion of the NBP. The department informed the Committee that the procurement process had been
run entirely by the department and that responsibility for the project, including final costs, rests with it.

“The Secretary General indicated that, as Accounting Officer for the Department, he would be held to account for the outcome of the project.

“The Committee noted that a reduction in the number of premises in the intervention zone could occur if a commercial operator approaches the department with a proposal to provide commercial broadband services to premises that are part of the intervention zone.

“Under EU state-aid rules, the State would not be in a position to decline a proposal
that meets all the necessary criteria.

“The NBP will take 7 years to pass all premises in the intervention zone for broadband.

“Premises that have been passed for broadband mean that they have the capacity for
high speed broadband to be connected to them.

“However, the committee also noted that it will still be the decision of commercial operators to provide broadband to those premises.

“Members raised concerns regarding the ownership structure of the broadband network that will be developed as part of the NBP.

“The preferred bidder has incorporated a new Irish registered company which will be known as National Broadband Ireland (NBI) to deliver the NBP.

“NBI will be supported by a number of international sub-contractors. The contract to NBI will be to build, operate and maintain the network and services over a 25-year period, with a commitment to provide services for a further 10 years.

“NBI will own the new infrastructure that it builds for the NBP.

“However, the Delivering National Broadband Plan document states that only a small amount of infrastructure used for the NBP will be new infrastructure.

“In order to strengthen the oversight of the operation of the Metropolitan Area
Networks, there should be no further delay to the implementation of the two outstanding
recommendations from the Analysys Mason Review of Pricing and Access
arrangements for the MANs.

“These relate to enet’s external communications and the development of discounting arrangements where uptake of MANs services is low.

“The Committee recommends that the two outstanding recommendations of the Analysys
Mason report be implemented by the Department of Communications, Climate Action
and Environment, in consultation with ComReg, as specified by the end of Quarter 3,
2019.

“The Analysys Mason Review of Pricing and Access arrangements for the operation of the MANs recommended that the four options it presented in 2017 should be reconsidered after a period of two years following reassessment of the MANs.

“The committee recommends that the Department of Communications, Climate Action and
Environment reassesses the operation of the MANs and reconsiders each of the options presented in the Analysys Mason review by the end of 2019.

There was a lack of transparency regarding the decision to extend the concessionary
contracts for the operation of the Metropolitan Area Networks.

“The committee recommends that during future concessionary contract discussions, the Department of Communications, Climate Action and Environment keeps all stakeholders informed in an appropriate manner to ensure a competitive situation exists in the interest of value for money for citizens, and releases details of the new arrangements as soon as is practical after the decision is made.

“It is unacceptable that significant changes resulting in a major escalation of estimated costs for the National Broadband Plan were made without a new Cost-Benefit Analysis being carried out.

“The Committee recommends that a new Cost-Benefit Analysis is performed before the final contract is signed to ensure that the full costs, including implementation, are known.

“The procurement process for the National Broadband Plan may have partly deterred parties interested in tendering for the project from doing so.

“The committee recommends that a review of the procurement process for the National Broadband Plan is undertaken by the Department of Public Expenditure and Reform to inform future procurement processes and ensure maximum competition.

“The changes in the National Broadband Plan requirements between the start of 2015 and when the project actively went out to tender meant the original cost projections
became irrelevant.

“A new Cost-Benefit Analysis should have been completed to reflect these changes.

“The committee recommends that in future, if significant changes are made to the project’s objectives, the Department of Communications, Climate Action and Environment produces a fully revised project plan including a new Cost-Benefit Analysis and that this be submitted to the Department of Public Expenditure and Reform.

“The potential for a further reduction in the number of premises in the intervention zone of the National Broadband Plan still exists.

“The committee recommends that the Department of Communications, Climate Action and Environment seeks confirmation that the current plan meets and will continue to meet EU State-Aid rules and makes any changes necessary to avoid future increases in cost.

“It is not clear how much of the broadband network in the National Broadband Plan will
be owned by the successful bidder.

“The committee recommends that the Department of Communications, Climate Action and Environment clarifies what portion of the network developed for the National Broadband Plan will be owned by the successful bidder when the contract has expired.

“The committee also recommends that the department ensures that the company awarded the contract is registered and tax compliant in an EU member state.”

Read the PAC report in full here

Previously: “There Should Be Judge-Led, Public Inquiries Into The Broadband Plan And The National Children’s Hospital”

4 thoughts on “Broadband On The Run

  1. GiggidyGoo

    And therein lies part of the reason EIR have re-entered the loop. “.The procurement process for the National Broadband Plan may have partly deterred parties interested in tendering for the project from doing so.”
    Another part is McCourt changing the terms.

  2. eoin

    This FG government better get its finger out and ink that NBP deal wth Denis O’Brien’s consortium [Denis was added into the consortium at the last minute in a multi-year procurement last year, just after the decision-making minister had a secret dinner with the lead bidder in New York where the disgraced Denis Naughten told David McCourt he could swap consortium members without affecting their bid] because Denis’s Digicel is now in bankruptcy territory with its better quality bonds trading at less than 55c in the dollar. Digicel is a goner, it’s just a question about how the underlying assets will pass from Denis to the bondholders.

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