steering group on the merger of the national roads … group on the merger of the national roads...
TRANSCRIPT
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Steering Group on the Merger of the
National Roads Authority and the Railway Procurement
Agency
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CONTENTS:
EXECUTIVE SUMMARY .............................................................................................. 3
1. INTRODUCTION................................................................................................... 16
2. THE OPPORTUNITY............................................................................................ 19
3. MISSION STATEMENT ....................................................................................... 21
4. REMIT OF TRANSPORT INFRASTRUCTURE IRELAND ........................... 22
5. FUNDING ARRANGEMENTS AND KEY RELATIONSHIPS ....................... 24
6. INSTITUTIONAL STRUCTURE ......................................................................... 25
KEY CONSIDERATIONS INFLUENCING CHOICE OF STATE BODY FORMAT ...................... 25
RATIONALE FOR INSTITUTIONAL STRUCTURE ................................................................ 25
NATURE OF BODY REQUIRED FOR FUNCTIONS OF TRANSPORT INFRASTRUCTURE
IRELAND ........................................................................................................................ 26 SOURCE OF FUNDING ..................................................................................................... 26
FINANCIAL AND CORPORATE REPORTING ...................................................................... 27 ASSET ACCOUNTING ...................................................................................................... 27
CORPORATE GOVERNANCE AND ACCOUNTABILITY ISSUES ........................................... 28 HUMAN RESOURCES ISSUES ........................................................................................... 28 COMMERCIAL OR NON-COMMERCIAL - CONCLUSIONS ................................................... 29
7. NATURE OF STATUTORY ENTITY ................................................................. 30
COMMERCIAL STATE BODIES: TYPES OF ORGANISATION .............................................. 30 POWERS AND FUNCTIONS............................................................................................... 31 CORPORATE GOVERNANCE ............................................................................................ 31
RELATIONS WITH CONTRACTORS AND OTHER STAKEHOLDERS ...................................... 31 INDUSTRIAL RELATIONS/ HR ......................................................................................... 32
INSTITUTIONAL STRUCTURE – CONCLUSIONS ................................................................ 32
8. ORGANISATIONAL STRUCTURE OF MERGED ENTITY .......................... 33
NRA‟S APPROACH ......................................................................................................... 33
RPA‟S APPROACH ......................................................................................................... 33
CURRENT ORGANISATIONAL STRUCTURES IN NRA AND RPA ....................................... 34 STRUCTURAL/ORGANISATIONAL CONSIDERATIONS IN MERGING THE TWO BODIES ........ 35
Infrastructure ............................................................................................................ 35 Commercial Operations ............................................................................................ 35 Support Functions ..................................................................................................... 36
Board......................................................................................................................... 36
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Subsidiaries ............................................................................................................... 36 CONCLUSIONS ON STRUCTURE ....................................................................................... 36
9. RISK ANALYSIS AND MITIGATION MEASURES ........................................ 37
RISK ANALYSIS CONDUCTED BY WORKING GROUP ........................................................ 37
IMPLICATIONS FOR NTA ................................................................................................ 38 RISK MITIGATION MEASURES ........................................................................................ 38
10. ROAD MAP FOR IMPLEMENTATION ........................................................ 40
THE LEGISLATIVE PROCESS ........................................................................................... 41 PARALLEL PREPARATORY ACTIONS ............................................................................... 42
Board appointments .................................................................................................. 42
CEO designate .......................................................................................................... 42
Human Resources Team ........................................................................................... 42 Organisation Structure ............................................................................................. 43 Transition Team ........................................................................................................ 43
11. COSTS AND SAVINGS ..................................................................................... 45
SAVINGS ........................................................................................................................ 45 COSTS ............................................................................................................................ 47
Staff time ................................................................................................................... 47 Once-off transition costs ........................................................................................... 47 Accommodation......................................................................................................... 47
Pensions .................................................................................................................... 48
Reducing staff numbers ............................................................................................. 48 CONCLUSIONS ON COSTS AND SAVINGS ......................................................................... 49
APPENDIX 1 MEMBERSHIP OF STEERING GROUP ....................................... 51
APPENDIX 2 MEMBERSHIP OF WORKING GROUP ....................................... 53
APPENDIX 3 MERGER RISK REGISTER ............................................................ 55
APPENDIX 4 MERGER TIMELINE ....................................................................... 61
APPENDIX 4A MERGER TIMELINE (A3 PAPER SIZE) .................................. 63
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Executive Summary
Introduction In May 2010, the Minister for Transport, Noel Dempsey T.D. appointed a Steering Group
to progress the merger of the Railway Procurement Agency (RPA) and National Roads
Authority (NRA) into a Transport Infrastructure Authority. The Government decision to
merge the two agencies followed on the recommendation contained in the McCarthy
Report on Public Service Numbers and Expenditure and also had regard to the wider
Government agenda on the rationalisation of public sector agencies.
The Terms of Reference required the Steering Group to report to the Minister on:
The structure and functions of the new body;
The actions to be taken to address any human resources or other issues arising
from the merger of both organisations; and
The cost savings or additional costs arising from the merger.
The membership of the Steering Group and the associated Working Group are set out in
Appendices 1 and 2.
The working title “Transport Infrastructure Ireland” is used for the merged body
throughout this report.
The decision to merge two successful organisations gives rise to both challenges and
opportunities. The Steering Group identified, as a key deliverable of the merger process,
the need to ensure that both agencies, which are central to the transport investment
programme, maintain a focus on the delivery of key projects during the transition to a
new institutional framework.
The Opportunity The principal opportunity identified by the Group, arising from the proposed merger, is:
The creation of a world-class organisation which would be a leader in the delivery
and maintenance of transport infrastructure in Ireland.
Such an organisation would build capacity which would be sustainable into the future,
would promote an integrated approach to the development of light rail and road transport,
integration of specialist resources and excellence in delivery. It would be a model
organisation which would demonstrate the best and most efficient use of public resources
in delivery. The merger would also contribute to rationalising the number, effectiveness,
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size and cost of Ireland‟s public bodies which in turn can contribute to improving
Ireland‟s competitiveness.
Transport Infrastructure Ireland will combine the staffing and financial resources of the
NRA and RPA and the experience and skills built up very successfully by both bodies in
recent years. This has the potential to provide very significant benefits including:
The Authority will be a key player in the Irish PPP market and its capacity to
negotiate and secure finance for PPP projects on the best possible terms will be
strengthened. The experience and track record of the NRA in delivering major
roads PPPs will complement the experience of RPA in securing funding through
developing models of partnership that result in the development gain being
captured to fund infrastructure development;
As the major investment projects on the national road network are completed, the
focus will shift towards improving the management of the network, including
overseeing PPP concessionaires, and the commercial experience of the RPA, for
example in successfully managing the Luas, will be invaluable in this regard;
The new organisation will benefit from combining the technical expertise and
experience available in the NRA and RPA and provide scope for a better career
path for staff, thereby enabling retention of key staff in an economic upturn. The
specialist areas concerned include: Project management, negotiation of PPP
contracts, scheme planning, engineering design and advice, planning and
environment procedures, property acquisition and management;
The provision of administrative support services, especially financial
management, will be enhanced in the new body and there is scope for
rationalisation in this area and in the management structure;
The new body will also have a strengthened capacity to interact with local
government in respect of planning matters, development contributions, traffic
management etc.;
The new body will have the potential to take on additional infrastructural
functions, particularly in the civil engineering sector, for example on foot of the
Local Government Efficiency Review.
Mission Statement The Group put forward a draft mission statement for the new authority:
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Transport Infrastructure Ireland will be a world-class organisation with a mandate to
provide, maintain and operate, either directly or indirectly, roads, light rail and metro
infrastructure and services in a safe, cost effective and sustainable manner to
contribute to meeting Ireland’s economic, social and environmental objectives for the
21st century.
Functions of Transport Infrastructure Ireland The Department of Transport has indicated that the merged entity will retain all the
existing functions of the NRA and the RPA and that the key relationships of the merged
agency will be with the Department of Transport and the National Transport Authority
(NTA). Legislation will set out the statutory framework for the new organisation; the
NRA and RPA will cease to exist on a specified date and relevant legislation in the Roads
Act, 1993 and the Transport (Railway Infrastructure) Act, 2001 will be amended to allow,
as far as possible, a single statutory framework for the new body.
The Department proposes that the principal functions of Transport Infrastructure Ireland
would be:
To secure, subject to such directions and guidelines as may be given by the
Minister, the provision of a safe and efficient network of national roads; and
To secure the provision of, or to provide, such light railway and metro
infrastructure as may be determined from time to time by the Minister or, in the
case of the greater Dublin Area, the NTA.
In respect of national roads the organisation would have:
Overall responsibility for the planning and supervision of works for the
construction and maintenance of national roads; and
Such other functions in relation to the construction and maintenance of national
roads as are assigned to it.
In respect of light rail and metro, the organisation would be entitled to:
Enter into agreements with other persons in order to secure the provision of light
rail or metro infrastructure whether by means of concession, joint venture, public
private partnership or any other means;
Acquire and facilitate the development of land adjacent to any railway works
subject to an application for a railway order where such acquisition and
development contributes to the economic viability of the said railway works.
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The Minister may, from time to time, assign other functions to Transport Infrastructure
Ireland in relation to securing the provision of transport infrastructure.
Transport Infrastructure Ireland may, where requested to do so by a public authority and
following the approval of the Minister, provide procurement, engineering or other
services to a public authority, whether related to transport infrastructure or not.
Funding arrangements and key relationships Funding will be allocated to the new body specifically designated for either national
roads or public transport. The funding allocations would be identified in the Vote of the
Department and could not be reallocated internally without the specific sanction of the
Department or the NTA.
There are currently important distinctions between the funding arrangements of the NRA
and RPA. The NRA, while operating within broad policy/ programme parameters set by
the Minister, is a sanctioning authority. The Department envisages that Transport
Infrastructure Ireland would remain the sanctioning authority for national roads and
would receive funding directly from the Department in this regard.
The DTA Act, 2008 sets out the basis of the relationship between the NTA and RPA .
The RPA only undertakes light rail or metro projects on receipt of direction from the
NTA to perform delivery functions on its behalf in the Greater Dublin Area and it
receives funding from the NTA in respect of those projects. While to date these directions
have been confined to Luas and Metro projects, it is envisaged that the RPA could also be
directed to secure the provision of bus rapid transit projects.
The Department has indicated that further consideration would be given to the extension
of the NTA‟s remit in relation to the funding and oversight of public transport
infrastructure outside the Greater Dublin Area. The view of the Steering Group is that
such consideration is timely and should result in the extension of the NTA‟s remit beyond
the GDA in tandem with the establishment of Transport Infrastructure Ireland. The new
body would therefore only undertake light rail, metro or bus rapid transit projects as
directed by the NTA.
Institutional Structure The Group recommends that Transport Infrastructure Ireland be established as a statutory
corporation, classified as a commercial State body and subject to such requirements of
the Companies Acts and the Combined Code of Corporate Governance as may be
deemed appropriate.
The Group agreed that the primary objective should be to ensure Transport Infrastructure
Ireland is appropriately structured to:
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Enable it to exercise the powers and carry out the functions of the NRA and RPA
efficiently and effectively;
Provide for sufficient flexibility to enable the organisation to respond to the future
evolution of the nature, scale and funding of the investment programme, the
balance between provision and operational management of infrastructure and
related services and provide scope for taking on additional functions in the future;
Address corporate governance issues effectively, including by providing an
appropriate financial and risk management framework and a robust structure for
the relationships with key stakeholders, especially the Department of Transport
and the NTA;
Facilitate management of the HR and other issues arising from the merger,
including the provision of transitional arrangements; and
Facilitate the financing of investment and operations through a combination of
Exchequer and non-Exchequer sources of funding and the classification of
projects on or off the general government balance sheet as appropriate.
The Group concluded that:
The flexibility available to a commercial State body as regards staffing is highly
desirable, in particular given the need to match staff resources to the changing
demands of the investment programme;
The relative importance of non-Exchequer funding will increase in coming years;
NRA and RPA are anxious to maintain and strengthen the financial management
and accounting arrangements applicable to both investment and operational
activities and this objective would be better achieved by the financial
management and accounting arrangements that typically apply to a commercial
State body;
Commercial State body status would provide greater scope for taking on
additional functions in the future should Government so decide;
HR issues will require careful attention whatever the format of the new body; in
particular, it will be necessary to provide in legislation for appropriate transitional
arrangements for the staff of both NRA and RPA; commercial State body
classification provides greater flexibility to address these issues in negotiation
with staff;
It would be best to avoid constituting the body as a company under the
Companies Acts as this might not be fully compatible with the discharge of public
policy functions; however it would be appropriate to apply appropriate elements
of the Combined Code for Corporate Governance to the new body e.g. as regards
the role of the Board, internal audit etc.
Structure – organisational structure The Group reviewed the current organisational structure of both the NRA and RPA and
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their respective approaches to delivering their functions. The group noted that the
similarities between the two organisations were significant despite apparent differences in
structure on paper. The differences are a function of historical differences in the delivery
of road and rail infrastructure; in how the two bodies were established, and in the specific
mandates granted to the bodies in their founding legislation.
The NRA has two core functions – improving and managing the national roads network.
It provides Programme Management and Functional Leadership for all its improvement
activities. It utilises local authority staff in Regional design Offices, Consulting
Engineers and Contractors for project activities, with the exception of the PPP
programme which NRA manages directly.
Network Management activities are managed by the NRA but outsourced to the private
sector or local authorities as appropriate. NRA also retains a number of consulting
engineering firms for a variety of specialist engineering services.
The RPA, on the other hand, was set up to develop light rail systems and, subsequently, a
metro system. Unlike road building, there was no current expertise in these technologies
in Ireland and a limited pool of expert consultancy familiar with Irish planning and
institutional requirements. Accordingly, RPA‟s approach was to assemble a greater
depth of expertise and resources in-house to manage the principal activities required to
allow the delivery of Metro and Luas infrastructure and services through public private
partnerships, conventional contracts and other franchise agreements and has acquired
considerable in-house capability in this regard.
Specifically, RPA undertakes in-house all the necessary procurement processes, original
design and contract specifications to allow the award of contracts required to implement
and commission infrastructure and have passenger services delivered.
RPA supplements these resources with consultancy if required to ensure project programs
are met, or to provide specialist input which is either difficult to recruit directly or could
not be used in a sufficiently productive manner based on forecast needs.
At the highest level both the NRA and RPA have a broadly functional organisational
structure. The RPA also has a direct high level project reporting system organised around
4 project directors while the NRA has local authorities working for or as agents of the
NRA.
The Steering Group agreed that a key task for the incoming chief executive and
management team of the merged entity should be to decide on the detail of the
organisational structure. The Group makes the following preliminary recommendations
on structure to accommodate the current approaches of the existing organisations and
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provide most flexibility for the new organisation while allowing for the evolution of its
work programme:
The structure of the new body should reflect the key deliverables of the merged
entity – namely infrastructure provision and commercial operations;
A matrix structure would appear to be most appropriate to manage and direct the
infrastructure activities of the merged entity, e.g. Major Roads, Local and
Regional Roads, Luas, Metro etc., comprising project teams supported by
specialist functions;
A matrix structure would also seem most appropriate for the management of all
commercial operations including management of property and assets, oversight
of transport service provision, tolling, operations management, management of
concessionaires etc.; this would involve small specialist teams responsible for
specific activities supported by or drawing on either in-house specialists or
external specialists as appropriate;
In the case of support functions - such as Accounts, Financial Control, Treasury
Management, Human Resource Management, Information Technology, Board
Secretary and Board support etc, - these lend themselves to conventional
functional structure; they can be aggregated into appropriately sized functional
units with the objective of optimising the span of control, ensuring efficient and
streamlined delivery of the service to the organisation and enabling appropriate
governance;
The structure should be such that subsidiaries could be established, subject to the
normal Ministerial approvals, to allow for management of certain projects at arms
length and to provide scope for taking on additional activities in the future;
The Board should be kept to a reasonable size, say 8 to 10 members, consistent
with the need to ensure appropriate corporate governance; Provision should be
made for an Audit Committee and to enable the Board to decide on other sub-
committees and their structure and membership.
Risk Analysis and Mitigation Measures In order to identify the actions that need to be taken to address any human resources or
other issues arising from the merger of both organisations, the Steering Group undertook
a comprehensive risk analysis and identified associated mitigation measures.
The risks are categorised into five groups:
Strategic risk
Reputational risk
Financial risk
Operational risk, and
Organisational / human resource risk.
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The assessed risks are also ranked and colour coded to allow for easy visual identification
of the risks and their level of priority. The full list is set out at Appendix 3 to the report..
The primary actions that are needed to ensure a successful amalgamation process are the
provision of early direction and clarity as to how the planning and transition is to be
managed and funded. The Department of Transport, with the agreement of the
Department of Finance, should also give clear direction on the planned designation of the
merged body as having either commercial or non-commercial status. Related to the
decision on status will be a consequential decision on terms and conditions of staff
working in the new organisation. The implications of the merger for pension entitlements
will also need to be addressed. Early clarity is required on who is to have ownership of
and authority to deal with the HR issues arising, and a direction that these issues should
be tackled with urgency in advance of the merger. Also a robust transition procedure
from the existing funding arrangements for RPA and NRA to a unified funding
arrangement for the merged body needs to be set out at an early stage.
The principal actions that are needed to protect the existing and future business,
governance and process of the two organisations both during and following
amalgamation include making an early decision on a mission statement and set of clearly
defined objectives for the new organisation.
A communications strategy should also be put in place to communicate to staff the role
and direction of the new organisation, to provide clarity on all issues affecting staff and to
communicate to business partners the commitment to protect existing contractual
relations and deliver on existing contracts.
Clarity of responsibility must be preserved during transition by maintaining the existing
responsibility as regards governance issues within each organisation until the new
organisation has a legal status and there is a smooth transfer of governance to it.
A strategic plan should be developed which defines the long-term goals of the new
authority. A five-year business plan should be completed setting out in detail the work
plans for the new authority which should reflect the current work plans of the individual
agencies and the new strategy. A submission to Revenue should be prepared for the
proposed merged entity aimed at preserving the current tax (VAT) status of railway
infrastructure.
Some of the issues referred to above are more urgent and complex than others. The
Implementation Roadmap summarised below locates the various tasks on the critical path
towards implementation and assigns responsibility for them.
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Road Map for Implementation of the Merger The Group developed guidelines which informed the proposed Road Map:
Once the decision is taken to proceed with the legislation, the period between the
initiation of actions to give effect to the merger and the commencement date of
the new body should be kept as short as possible - a short, sharp implementation
period is preferable;
A CEO designate would best serve the long-term interests of the Transport
Infrastructure Ireland and provide clear leadership and strategic direction to the
new body from the outset; the appointment of a CEO designate should only take
place when there is a considerable degree of certainty that the merger will go
ahead;
While some preparatory activities can get underway in advance of the
appointment of a CEO designate, care should be taken to avoid dissipating effort
and creating too many parallel work streams in advance of that appointment;
Resolving the complex HR issues associated with the merger of a commercial and
a non-commercial State agency always takes longer than anticipated; work should
start on gathering the data and analysis required for HR purposes and on engaging
with staff interests as soon as a decision is taken to proceed with the legislation;
There is scope for joint appointments to the boards of NRA and RPA to prepare
the ground for the board of Transport Infrastructure Ireland; however care should
be taken to avoid the creation of a “shadow” board which dilutes responsibility
and accountability for governance issues in NRA and RPA prior to the legal
establishment of the new body.
Having regard to these guidelines, the proposed sequencing of legislative and preparatory
actions to give effect to the merger and indicative time-lines for completion of the
process are set out in the body of the report and at Appendix 4.
They include:
Enactment of legislation with a view to a commencement order establishing the
new body some 12 months after the initial Government decision to proceed with
legislation ;
Parallel appointments to the boards of NRA and RPA pending the enactment of
legislation and the possible appointment of a joint Chair of both organisations;
A CEO designate to be appointed no more than 3 months before the anticipated
commencement date of Transport Infrastructure Ireland;
A Human Resources Team, to be put in place as soon as Government had decided
to proceed with the legislation, to develop positions on key HR issues as an input
to the legislation and to put in place a plan for dealing with all major staff issues;
CEO designate, when appointed, to make decisions on organisation structure and
future management assignments on a fair and transparent basis and to prepare
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strategic plan and business plan;
Transition Team to be established between 3 and 6 months prior to expected
commencement date and jointly staffed by NRA and RPA; it would report to the
CEOs of NRA and RPA pending appointment of CEO designate who would take
over chairing the Team.
Potential Savings arising from the Merger The sequencing of the flow of costs and benefits is expected to follow the usual pattern of
a merger operation. There will initially be some extra costs associated with preparing
and implementing the merger. In time the benefits of the merger will begin to come
through. The more tangible benefits and cost saving associated with merging common
administrative systems and reducing the number of boards, chief executives and
corporate support for the boards are expected to become evident first, followed by the
less tangible benefits of creating an organisation with greater expertise, a wider range of
capabilities and the capacity to more efficiently deploy staff across all aspects of the
organisation‟s activities.
It is expected that the intangible benefits to be gained through the proposed merger will,
in the longer term, far outweigh any identified direct savings that would accrue, and it is
the achievement of those longer-term benefits that is the primary driver of the merger
process.
The wider strategic benefits associated with creating a merged entity are likely to
translate into tangible cost savings in the medium term.
There will also be an opportunity to achieve savings in the support functions of the
combined organisation in the medium term. The provision of administrative support
services, especially financial management, IT, HR etc. will be enhanced in the new body
and there is scope for rationalisation in this area as the merger process is worked through.
It is expected that the merged organisation will, over time, move to using a single set of
IT systems including management information, financial control and related systems. It is
recommended by the Group that this be achieved through selecting the most appropriate
existing systems and migrating all users to these systems, rather than by implementing
new systems.
There will also be savings in the management structure of the new body and from the
reduction from two to one Boards, Chief Executives and associated support structure.
With regard to the savings from the pooling of administrative/support functions for HR,
IT and Finance, it should be noted that the non-payroll costs associated with those areas
account for a fairly small element of the overall costs in both organisations. The main
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saving to the budget of Transport Infrastructure Ireland would therefore have to come
from a reduction in staff costs. There may also be scope for the more efficient utilisation
of employees to replace consultancy support across all programme activities.
While it is not possible to make a precise estimation of savings at this stage, the Group
considers that, in the medium term, these will substantially exceed the €3 million saving
proposed for this measure in the Report of the Special Group on Public Service Numbers
and Expenditure, 2009 and in the medium term will be of the order of €3 to 4 million per
annum.
Costs Associated with the Merger In considering the costs that can arise in the transition to a merged entity, the Group
distinguished between internal or “opportunity” costs arising from the diversion of senior
management time to merger activities and once-off external expenditure required as a
result of the merger.
Transition to the merged organisation will inevitably require a substantial investment in
terms of management and staff time. This has a significant opportunity cost in terms of its
impact on the ongoing work programme of both organisations. The Group considered
that this resource requirement should be capable of being met from within the existing
administrative budgets of the NRA and RPA. However the impact on the ongoing work
programme will need to be carefully monitored and managed given the key deliverable
identified earlier of ensuring focus is maintained on the delivery of key transport projects
during the transition to the new institutional framework.
The Working Group considered the range of possible merger planning and
implementation costs, apart from staff time, which could arise from the commencement
of the merger process. These once-off costs should be carefully monitored throughout the
transition process, using a project management approach, and every effort should be
made to keep them to a minimum. These costs should also be met from within existing
administrative budgets.
More significant costs could arise if completely new IT and financial management
systems were introduced but the Group recommended that a choice would be restricted to
one or other of the existing systems.
Ideally, and to get the full benefits of the merger, the staff of NRA and RPA should
migrate to a common headquarters. However the costs of this accommodation could be
prohibitive given break clauses in existing leases, fit out costs etc. It is proposed that the
provision of a single office location is kept under review and, as least cost opportunities
arise to consolidate the location of staff, these should be availed of. Meanwhile there will
be some costs associated with a limited co-location of staff of certain functional or
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project groupings and in the short term it would be worthwhile investing in improved
communications and data links between the separate locations and creating appropriate
opportunities for mobility of staff between the locations.
With regard to pensions costs, the merger of the NRA and RPA does not of itself change
the position regarding assets and liabilities of the various pension schemes or the rights
and obligations of employers and employee members of the schemes. No direct pensions
costs would arise as a result of the merger but it would be a matter for the new body to
consider what superannuation arrangements should be put in place for the future,
including for new employees.
In the absence of any Government decision on a scheme of voluntary redundancy, as part
of wider proposals to reduce public sector employment numbers, no assumption has been
made that such a scheme will be in place for the staff of NRA and RPA. Instead, it is
envisaged that the reduction in surplus staff would be achieved either by re-assignment to
new tasks within the organisation, by natural reduction over the longer term, as staff
resign or retire, or by re-assignment to the wider public service.
The Croke Park agreement provides for the re-assignment of staff of non-commercial
State bodies to the wider public service. Should this issue arise in respect of RPA staff
who have commercial state body status, the Group recommends that discussions take
place with staff with a view to facilitating voluntary arrangements for such re-
assignments.
In the event that a scheme of voluntary redundancy were to be introduced, the once-off
costs associated with such a scheme would need to be factored into the overall costs of
implementing the merger. This would add to costs in the short term but speed up the
delivery of year on year savings in the administrative budget of the merged body.
The benefits, both tangible and intangible, to be gained from the merger are considered
by the Group to substantially outweigh any immediate costs incurred in putting the
merger through. These benefits will accrue over the longer term as the amalgamated
body integrates its systems and develops a more effective presence in the market place
reflecting its greater scale and level of expert knowledge. The requirement to dedicate
staff resources to making the amalgamation process work is recognised. The immediate
costs associated with implementing the merger should be capable of being met from
within the existing administrative budgets of the NRA and RPA.
The Group proposes that:
Costs and savings arising from the merger are carefully tracked throughout the
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merger process;
Costs associated with effecting the merger are met from the administrative
budgets of the NRA and RPA;
A reduction of the order of €3 – 4 million is made in the combined annual
administrative budgets of the NRA and the RPA from the third full year of
operation of Transport Infrastructure Ireland to reflect savings arising from the
merger following an initial investment in making the merger a reality; the precise
reduction and phasing of administrative budget cuts to be decided in light of more
detailed information obtained on costs and savings during the merger process;
The incoming Chief Executive should undertake a systematic review of all
overhead spend on support functions, infrastructure and the management of
commercial operations to ensure these savings are realised.
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1. Introduction
The McCarthy report on Public Service Numbers and Expenditure, recommended that the
Railway Procurement Agency (RPA) and National Roads Authority (NRA) be merged
into a single entity. Whilst the recommendation in the McCarthy Report was primarily
focussed on the achievement of cost savings arising from such a merger, the proposal also
addresses a wider Government agenda, deriving from the OECD report on the public
service, on the rationalisation of public sector agencies.
On 11th
May 2010, the Minister for Transport, Noel Dempsey T.D. appointed a Steering
Group to progress the examination of the merger of the two agencies into a Transport
Infrastructure Authority.
The Minster appointed Julie O‟Neill, former Secretary General of the Department of
Transport as Chairperson of the Group. The other members of the Steering Group were
the Chief Executives of the National Roads Authority, Railway Procurement Agency and
National Transport Authority, a non-executive board member nominated by each of the
Boards of the National Roads Authority and the Railway Procurement Agency and an
Assistant Secretary from the Department of Transport. The full membership of the Group
is set out in Appendix 1. The Secretary to the Group was Margaret Malone, Higher
Executive Officer at the Department of Transport.
Under the Terms of Reference the Group was required to report to the Minister on:
The structure and functions of the new body;
The actions to be taken to address any human resources or other issues arising
from the merger of both organisations; and
The cost savings or additional costs arising from the merger.
A Working Group was also established by the Minister to carry out the detailed analysis
and implementation plan under the direction of the Steering Group. The Working Group
was chaired by Matt Benville, Principal Officer at the Department of Transport and
included representatives of the National Roads Authority and the Railway Procurement
Agency. The membership of the Working Group is set out at Appendix 2. Mr. Benville
was in attendance at meetings of the Steering Group.
The Steering Group considered:
The opportunities created by a merger of the two entities – both for the agencies
themselves and for their key relationships with the Department, the National
Transport Authority (NTA) and other stakeholders;
The mission statement for the new body;
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The functions of the new body, having regard to the strategic framework for the
merger which was provided by the Department of Transport as a backdrop to the
work of the Group;
The appropriate institutional and organisational structure for the new body;
An analysis of the risks associated with the merger and the measures that would
need to be put in place to mitigate risks posed by the merger;
An implementation plan to effect the merger;
The potential costs and saving arising from the merger and how the costs could be
minimised and the full benefits achieved.
These are detailed in the sections below.
A decision to merge two successful organisations into a new entity gives rise to both
challenges and opportunities. A key deliverable of the merger process will be to ensure
that both agencies, which are central to the transport investment programme, maintain a
focus on the delivery of key projects during the transition to a new institutional
framework.
The Group was acutely aware of the human resource issues arising from the merger and
of the importance of giving early clarity to staff on the implications of proposed changes.
This is important both as a matter of good HR practice in its own right and also because
of the potential for the worries and concerns of staff to detract from the focus on delivery
of the current work programme of the NRA and RPA.
The Group was also conscious of the potential for the merger process to impact on the
bedding down of the recently established NTA at a critical stage of its development as
well as the risk of unsettling contractors and consortia who are currently in negotiations
or contractual relationships with either the NRA or RPA and these concerns are also
addressed in the recommendations below.
There is always a danger that mergers will under-deliver on opportunities and fail to
effectively address risks. These factors were taken into account in developing the risk
strategy and implementation plan.
18
The Steering Group arrived at its findings and conclusions having regard to its own
analysis and the detailed analysis undertaken, at its request, by the Working Group. The
Group also had regard to research carried out by the Institute of Public Administration
(IPA) on State bodies as well as recent experiences of mergers of State bodies in Ireland
and elsewhere. This assisted in identifying the risks associated with such mergers and the
mitigating actions needed to address them. The Chairperson of the Group also met the
Chairpersons of the NRA and RPA prior to finalising the report.
Notwithstanding that the boards of NRA, RPA and NTA were represented on the
Steering Group, the report of the Steering Group is not put forward as a report of the
boards of the three organisations concerned, nor is the endorsement of the report by the
boards implied as a result.
The working title “Transport Infrastructure Ireland” is used for the merged organisation
throughout the report. Where the term “Group” is used in this report it should be taken to
refer to the Steering Group.
19
2. The Opportunity
Before considering the structures and functions of the new body, the Group reviewed the
opportunities that the merger would give rise to. The principal opportunity identified by
the Group, arising from the proposed merger, is:
The creation of a world-class organisation which would be a leader in the delivery
and maintenance of transport infrastructure in Ireland.
Such an organisation would build capacity which would be sustainable into the future,
would promote an integrated approach to the development of light rail and road transport,
integration of specialist resources and excellence in the delivery of light rail and road
infrastructure. It would be a model organisation which would demonstrate the best and
most efficient use of public resources in delivery. The merger would also contribute to
rationalising the number, size and cost of Ireland‟s public bodies which in turn can
contribute to improving Ireland‟s competitiveness.
The Group considered the main strategic advantages of proceeding with amalgamation
from the perspective of:
End users of transport infrastructure and of services procured by the merged
entity;
Government, the Department of Transport and the NTA; and
Other stakeholders, especially the staff of both NRA and RPA.
The new organisation will combine the staffing and financial resources of the NRA and
RPA and the experience and skills built up very successfully by both bodies in recent
years. This has the potential to provide very significant benefits including:
Transport Infrastructure Ireland will be the key player in the Irish PPP market and
its capacity to negotiate and secure finance for PPP projects on the best possible
terms will be strengthened. The experience and track record of the NRA in
delivering major roads PPPs will complement the experience of RPA in securing
funding through developing models of partnership that result in the development
gain being captured to fund infrastructure development;
As the major investment projects on the national road network are completed, the
focus will shift towards improving the management of the network, including
overseeing PPP concessionaires, and the commercial experience of the RPA, for
example in successfully managing the Luas, will be invaluable in this regard;
20
The new organisation will benefit from combining the technical expertise and
experience available in the NRA and RPA and provide scope for a better career
path for staff, thereby enabling retention of key staff with specialist expertise. The
specialist areas concerned include: Project management, negotiation of PPP
contracts, scheme planning, engineering design and advice, planning and
environment procedures, property acquisition and management;
The provision of administrative support services, especially financial
management, will be enhanced in the new body and there is scope for
rationalisation in this area and in the management structure;
The new body will also have a strengthened capacity to interact with local
government in respect of planning matters, development contributions, traffic
management etc.;
The new body will have the potential to take on additional infrastructural
functions, particularly in the civil engineering sector (for example on foot of the
local government efficiency review).
21
3. Mission Statement
In order to articulate this opportunity, the Group gave consideration to a Mission
Statement for the new organisation.
The NRA and the RPA both undertake broadly similar functions in relation to the
provision of transport infrastructure. The RPA has a particular role in overseeing the
provision of services (e.g. Luas) on behalf of the NTA and the NRA is increasingly
focusing on overseeing the management of the national road network, including tolling
and PPP concessionaires.
The NRA Annual report for 2009 includes the following mission statement: “Our
purpose is to improve quality of life and national economic competitiveness by
developing, maintaining and operating the national road network in a safe, cost effective
and sustainable manner”.
The RPA summarises its mission (as a strap line to e-mails etc.) as follows: “The RPA’s
vision is to get people out of their cars and into public transport in urban areas”.
At first glance these statements do not sit comfortably side by side but they can be
reconciled within the framework of the Government‟s sustainable transport policy: better
management of the road network and provision of efficient rail based urban public
transport should be complementary objectives.
The Group put forward the following draft mission statement for the new organisation, to
which it gave the working title “Transport Infrastructure Ireland”.
Transport Infrastructure Ireland will be a world-class organisation with a mandate to
provide, maintain and operate, either directly or indirectly, roads, light rail and metro
infrastructure and services in a safe, cost effective and sustainable manner to
contribute to meeting Ireland’s economic social and environmental objectives for the
21st century.
22
4. Remit of Transport Infrastructure Ireland
The high level functions of the new organisation were detailed in a paper prepared by the
Department of Transport which set out a strategic framework for the merger and provided
a backdrop to the work of the Group.
This paper indicated that the new entity would retain all the existing functions of both the
NRA and the RPA. It recognised that key relationships of the merged body will be with
the Department and the National Transport Authority (NTA). The relationship with the
NTA will be as set out in the Dublin Transport Authority Act, 2008 in relation to the
RPA for light rail and metro and in relation to NRA as regards national road
infrastructure within the Greater Dublin Area.
Legislation will set out the statutory framework for the new organisation. Both the NRA
and RPA will cease to exist on a specified date and the Roads Act, 1993 and the
Transport (Railway Infrastructure) Act, 2001 will be amended to allow a single statutory
framework for the new body.
The Department proposes that the principal functions of the merged body will be:
To secure, subject to such directions and guidelines as may be given by the
Minister, the provision of a safe and efficient network of national roads; and
To secure the provision of, or to provide, such light railway and metro
infrastructure as may be determined from time to time by the Minister or, in the
case of the greater Dublin Area, the NTA.
In respect of national roads the organisation will have:
Overall responsibility for the planning and supervision of works for the
construction and maintenance of national roads; and
Such other functions in relation to the construction and maintenance of national
roads as are assigned to it.
In respect of light rail and metro, the organisation will be entitled to:
Enter into agreements with other persons in order to secure the provision of light
rail or metro infrastructure whether by means of concession, joint venture, public
private partnership or any other means;
Acquire and facilitate the development of land adjacent to any railway works
subject to an application for a railway order where such acquisition and
development contributes to the economic viability of the said railway works.
23
The Minister may, from time to time, assign other functions to the body in relation to
securing the provision of transport infrastructure.
In addition the body may, where requested to do so by a public authority and following
the approval of the Minister, provide procurement, engineering or other services to a
public authority, whether related to transport infrastructure or not.
The existing governance arrangements of both organisations will be repealed and
replaced with the new provisions. This will terminate all existing appointments to the
boards from the commencement date of the relevant provision and require the Minister to
appoint a new Board.
24
5. Funding arrangements and key relationships
Funding will be allocated to the new body specifically designated for either national
roads or public transport. The funding allocations would be identified in the Vote of the
Department and could not be reallocated internally without the specific sanction of the
Department or the NTA.
There are currently important distinctions between the funding arrangements of the NRA
and RPA. The NRA, while operating within broad policy/ programme parameters set by
the Minister, is a sanctioning authority. The Department of Transport envisages that
Transport Infrastructure Ireland would remain the sanctioning authority for national roads
and would receive funding directly from the Department in this regard.
The DTA Act, 2008 sets out the basis of the relationship between the NTA and the RPA.
The RPA only undertakes public transport infrastructure projects on receipt of direction
from the NTA to perform delivery functions on its behalf in the Greater Dublin Area and
it receives funding from the NTA in respect of those projects. While to date these
directions have been confined to Luas and Metro projects, it is envisaged that the RPA
could also be directed to secure the provision of bus rapid transit projects.
If existing funding arrangements continued in relation to public transport infrastructure,
the NTA would provide funding to the new body in respect of public transport
infrastructure in the Greater Dublin Area and the Department of Transport would provide
funding in relation to light rail or bus rapid transit infrastructure in the rest of the country.
The Department indicated that further consideration would be given to the extension of
the NTA‟s remit in relation to the funding and oversight of public transport infrastructure
outside the Greater Dublin Area. The view of the Group is that such consideration is
timely and should result in the extension of the NTA‟s remit in tandem with the
establishment of Transport Infrastructure Ireland. The new body would therefore only
undertake light rail, metro or bus rapid transit projects as directed by the NTA.
25
6. Institutional Structure
Establishing Transport Infrastructure Ireland involves merging a non-commercial State
body - NRA - with a commercial State body - RPA. The Group considered that the
institutional structure for the new body should be designed to realise the full potential
benefits of the merged entity. Different risks and opportunities arise depending on the
structure chosen. The Group first considered whether the new body should be a
commercial or non-commercial State body.
Key Considerations Influencing Choice of State Body Format
A number of important considerations have informed the examination of options for a
format for Transport Infrastructure Ireland and in particular:
Powers and functions of the merged entity as an appropriate starting point so that
format can best match the organisation‟s functions;
Experience of the existing bodies as NRA is a non-commercial State body while
RPA is a statutory corporation classified as a commercial State body;
Experience in respect of establishment of other State bodies; and
Findings of recent IPA research on State bodies and discussions with the authors
of the relevant reports.
Rationale for Institutional Structure
The Group agreed that the primary objectives should be to ensure that Transport
Infrastructure Ireland is appropriately structured to:
Enable it to exercise the powers and carry out the functions of the NRA and RPA
effectively and efficiently;
Provide for sufficient flexibility to enable the organisation to respond to the
future evolution of the nature, scale and funding of the investment programme,
the balance between provision and operational management of infrastructure and
related services and provide scope for taking on additional functions in the future;
Address corporate governance issues effectively, including by providing an
appropriate financial and risk management framework and a robust structure for
the relationships with key stakeholders, especially the Dept of Transport and the
NTA;
Facilitate management of the HR and other issues arising from the merger,
including the provision of transitional arrangements; and
Facilitate the financing of investment and operations through a combination of
Exchequer and non-Exchequer sources of funding and the classification of
projects on or off the general government balance sheet as appropriate.
26
Nature of Body Required for Functions of Transport Infrastructure Ireland The functions and powers of the NRA and RPA are provided for in the relevant
governing legislation (respectively the Roads Act 1993 and the Transport (Railway
Infrastructure) Act 2001). The Group noted that although the NRA is classified as a non-
commercial State body and the RPA as a commercial body, there are many similarities in
the way powers and functions are set out in the relevant legislation.
This is consistent with the findings of the IPA research on non-commercial State bodies
which concludes that: “As there is no strict or widely accepted definition as to what
constitutes a State agency in Ireland considerable variety exists in terms of the basis for
classification of public sector organisations”1 and the research on commercial State
bodies which notes a variety of ways of classifying these bodies and concludes that “ a
simple definition of commercial State enterprises as those bodies that are self-financing
or rely only partially on State funding would exclude those enterprises that depend on
considerable State funding…on an ongoing basis because of the specific nature of their
work, which is carried out in an explicitly commercial environment” and that “defining
contemporary State enterprises according to their source(s) of income also has its
limitations in terms of capturing the nature of their work”2
In the course of the work of the Group, the chief executives of the NRA and RPA
stressed the need for flexibility to enable Transport Infrastructure Ireland to manage its
functions effectively and especially to respond to changes in the nature and scale of the
programme to be delivered. The contrast between the experiences of both bodies in recent
years in this regard is instructive. By virtue of the flexibility available to a State body
classified as a commercial body, the RPA has been able to flex staffing resources in line
with the demands of its programme in a timely manner. By contrast, because of the
restrictions that generally apply to non-commercial State bodies, the NRA experienced
difficulty in responding quickly and effectively to the demands of a significant expansion
of the Roads Programme under the NDP 2000-2006. The RPA has been able to recruit
and retain specialist staff and to avoid potentially more expensive arrangements through
contracts for services or over-reliance on consultancy services. In the absence of the
flexibility to decide whether to hire staff or engage consultants on the basis of a business
case, the NRA has had to rely more heavily on engagement of consultants.
Source of Funding It is often suggested that a key distinction between commercial and non-commercial State
bodies is the balance between Exchequer and non-Exchequer funding, though, as noted
by the IPA research referred to above, this approach has its limitations. Both NRA and
RPA receive substantial Exchequer funding either directly from the Department of
Transport Vote, as in the case of NRA, or indirectly via the NTA, as in the case of RPA.
Both NRA and RPA also generate substantial non-Exchequer funding for investment
projects, for example through the negotiation and management of PPP contracts, through
1 National non-commercial State agencies in Ireland M MacCarthaigh, IPA p9.
2 The Corporate Governance of Commercial State-Owned Enterprises in Ireland, M Mac Carthaigh, IPA
p5.
27
direct agreements with property owners who benefit from new infrastructure and the use
of development levies collected through planning authorities. Both organisations also
oversee or directly manage significant ongoing operations on a commercial basis. For
example, RPA is responsible for overseeing the Luas Operator concession and NRA
directly manages tolling on the M50.
For the future, funding for transport investment projects to be delivered by both NRA and
RPA is likely to be increasingly dependent on non-Exchequer funding. Moreover, as
major investment projects are completed, the NRA will focus more on network
management and this is likely to involve an increasingly commercial focus, based on
experience of managing the PPP concessions.
Financial and Corporate Reporting Comparison of the NRA and RPA accounts reveals significant contrasts. In line with the
practice for commercial State bodies, the RPA prepares an annual report incorporating
financial statements and the external auditor‟s report as an integrated document. The
2009 Annual Report and audited Accounts were approved by the Agency Board on 29
April, 2010. By contrast, the NRA prepares its Annual Report and Accounts separately.
The NRA‟s 2009 Annual Report was approved by the Board, in early 2010 and
subsequently published. Un-audited accounts were presented to the Department at end
February 2010 and will be audited by the C&AG later this year prior to presentation to
Government.
Given the scale of investment by both bodies, the Group considers that significant
governance benefits would result from adopting the strict reporting timelines that are
required when engaged in audit planning and preparation with external auditors. Further
benefits would accrue from retaining external auditors with experience in auditing private
companies who are counterparties to PPP or other delivery contracts. The benefits of the
Board having independent audit assessment of the valuation of all material liabilities and
claims in a timely manner at the financial year-end also argues in favour of a commercial
structure.
Asset Accounting
Another significant difference is the approach adopted by both bodies to their balance
sheets.
The RPA is currently an asset owner with long-term responsibility for the light rail
infrastructure in which it has invested. The RPA balance sheet therefore includes the
value of investment to date in the light rail network as tangible fixed assets (2009: €1.117
billion).
By contrast, the NRA balance sheet does not include any comparable figure in respect of
investment in the road network. The NRA balance sheet for 2009 shows tangible assets
of only €1.786 million. For nearly two decades NRA has funded and supervised the
procurement and construction of the national roads network but, while this expenditure is
28
recorded in the expenditure accounts of local authorities, it is not reflected in the balance
sheet of the NRA nor the local authorities.
In a merger situation it would be necessary to bring together the assets and liabilities of
the NRA and RPA onto one balance sheet. During that process it would be necessary to
consider the format of that balance sheet and the most appropriate presentation of the key
items. The issue of ownership and responsibility for roads assets should be considered
carefully in that context, including the issue of the most appropriate treatment of the
valuation of investment in the national road network. The aim should be to inform
decisions on the level and timing of reinvestment, including effective and timely
maintenance, to protect the long-term value of the assets.
Initially there would be no difficulty bringing the existing balance sheets together. This
would be done following consideration of the issues mentioned and an assessment of the
value of the respective assets and liabilities.
Corporate Governance and Accountability Issues
The key issue to be addressed under this heading is how best to ensure clarity about
objectives and to have a framework for financial and performance accountability that is
consistent with the mandate for the body and the nature and scale of its activities.
Notwithstanding the improvements made to the Code for Corporate Governance for non-
commercial State bodies, on balance the discipline required to operate and be accountable
under a commercial mandate (whether incorporated as a company or not) is highly
desirable. This conclusion takes account of experience with a range of commercial and
non-commercial State bodies and the fact that the merged entity will increasingly be
managing funds for both operational and investment purposes from a variety of sources.
A commercial mandate and focus on the part of Transport Infrastructure Ireland
complements the policy and oversight roles of the Department of Transport and the NTA.
The legislation can also provide for accountability (Chair and CEO) to the Oireachtas and
application of FOI, Ombudsman and SIPO legislation.
Human Resources Issues As has already been noted above, there are significant differences between the NRA and
RPA in respect of key aspects of the human resources arrangements (terms and
conditions of employment, recruitment, remuneration and superannuation arrangements).
Accordingly, whether a commercial or non-commercial body format is chosen for
Transport Infrastructure Ireland, it will be necessary to devote a lot of attention to human
resources and industrial relations issues in effecting a successful merger.
Elsewhere in this report the Group has highlighted the risks associated with not
establishing an organisation where all staff are effectively deployed and fully motivated
to contribute to the aims and objectives of Transport Infrastructure Ireland. The ultimate
objective should be to ensure that the merged entity has the flexibility it needs to
continually match the staffing requirements to the medium term work programme. In
order to do this it will be necessary to provide arrangements appropriate for staff and for
the effective working of the new body. Arrangements made to accommodate
29
organisational changes will need to address the range of different categories of staff from
those with the status of permanent public servants to staff in both organisations who are
employed on a variety of contract arrangements.
There are relevant precedents for accommodating the planned organisational change for
such a variety of staff categories. For instance the Irish Aviation Authority Act 1993,
established the Authority (IAA) as a commercial State body (as a private company with
the Minister as shareholder). Section 40 (1) of the Act provided for the transfer of
established civil servants of the Air Navigation Service and Aeronautical Services
Divisions of the then Department of Transport Energy and Communications to the IAA.
Great care will have to be taken in devising arrangements to cover the transfer of staff of
both NRA and RPA to a merged entity, regardless of the institutional structure chosen.
Commercial or Non-commercial - conclusions
The Group concluded that:
The flexibility available to a commercial State body as regards staffing is highly
desirable, in particular given the need to match staff resources to the changing
demands of the investment programme;
The relative importance of non-Exchequer funding is likely to increase in coming
years; NRA and RPA are anxious to maintain and strengthen the financial
management and accounting arrangements applicable to both investment and
operational activities and this objective would be better achieved by the financial
management and accounting arrangements that typically apply to a commercial
State body;
Commercial State body status would provide greater scope for taking on
additional functions in the future should Government so decide;
HR issues will require careful attention whatever the format of the new body; in
particular, it will be necessary to provide in legislation for appropriate transitional
arrangements for the staff of both NRA and RPA; commercial State body
classification provides greater flexibility to address these issues in negotiation
with staff.
30
7. Nature of statutory entity
The Group considered a number of options for a commercial format for the body taking
account of appropriate examples and with a view to identifying the relevant legislative
provisions to provide guidance for the preparation of the legislation required to establish
Transport Infrastructure Ireland.
Commercial State Bodies: Types of Organisation
Section 6 referred to research undertaken by the Institute of Public Administration and
the CPMR Research Report 9: The Corporate Governance of Commercial State-owned
Enterprises in Ireland3 is most relevant in this regard. This Report identifies and
examines the various legal forms used for the formation of Commercial State bodies
since the foundation of the State. The research4 identifies four ways in which State
owned enterprises have been established in Ireland:
A Statutory Company (Corporation), governed by its founding legislation; e.g.
the ESB, VHI and Bord Gais;
A Public Company, registered under the Companies Acts e.g. Dublin Airport
Authority, the Irish Aviation Authority and Coillte Teoranta;
A Private Company, registered under the Companies Acts and either limited by
State guarantee or not limited by guarantee but with shares; or
A Corporate Body established by Ministerial Order under an enabling Act.
Two of these: the Statutory Company (Corporation) and the Limited Company
(Public or Private), with Minister as (sole) shareholder established under legislation, are
relevant for consideration in the context of merger of the NRA and RPA. The key
distinctions between these two categories are:
All powers and functions of a statutory corporation must be set out in the
governing legislation, whereas a limited company can have very wide powers
derived from the body of company law, apart from its specific Act; and
A limited company is subject to the provisions of the Companies Acts including,
for example requirements regarding fiduciary duties of Directors, holding of
AGMs, application of accounting standards etc.
The IPA research indicates a shift towards using the company format in more recent
times, especially where a State body is providing goods or services on a commercial basis
in competition with others. This is consistent with the recommendations of various
reports on corporate governance, e.g. the Department of Public Enterprise Report on State
bodies (2000). The IPA research suggests two distinct advantages of the company format:
flexibility in relation to taking on additional functions or accommodating changes in
powers and functions and clarity and rigour as regards corporate governance and
accounting arrangements.
3 Muiris MacCarthaigh Institute of Public administration, 2009
4 MacCarthaigh p9
31
The Group examined some examples of Commercial State bodies, the relevant legislative
provisions and implications for the objectives for structure identified in Section 6.
Powers and Functions The flexibility a company format gives with respect to powers and functions is not
particularly relevant to the proposed merger of the NRA and RPA as it will be necessary
to legislate to effect the merger. The legislation will have to amend the Roads Act and the
Transport (Railway Infrastructure) Act to ensure a clear transfer of powers, functions,
contractual arrangements etc to the new body. The legislation can be drafted to allow for
flexibility for the future (subject to ministerial approvals etc.). Where a substantial
change to powers and functions is subsequently proposed, this would probably require
legislation in any event but this may not necessarily involve complex amending
legislation.
The company format may not suit the full range of functions of the NRA and RPA. For
example there could be a perception of conflict of interest between any regulatory and
commercial functions. The broader the remit of a State body, the greater the risk of
conflict (particularly for a Board and CEO) between meeting commercial and public
policy objectives. While this dilemma can arise no matter what format is chosen for the
body, it must be recognised that with a company format, the requirements of the
Companies Acts would override other considerations. In particular, under Company
Law, Board decisions must respect the fiduciary responsibilities of Directors. The
legislation governing the body cannot be in conflict with the requirements of the
Companies Acts.
Corporate Governance
The statutory corporation format can accommodate such elements of the provisions of the
Companies Acts and the Combined Code for Corporate Governance as are deemed
appropriate, for example by incorporating the relevant requirements in the legislation, by
Ministerial Direction or a by a Board decision. For example, the RPA Annual Report for
2009 includes statements on the financial management and control policies adopted by
the Agency which go beyond narrow compliance with the requirements of the Transport
(Railway Infrastructure) Act 2001.
Relations with Contractors and other Stakeholders Both NRA and RPA have the vires to enter into contractual arrangements and there is no
evidence of any significant difficulties arising that might be more easily addressed if
NRA or the RPA were constituted as companies.
While lending agencies, investors (e.g. for a Bond issue) and credit rating agencies may
find it easier to understand the implications of the company format, there is also some
evidence that in current financial markets, the statutory corporation format might be more
advantageous. Ultimately, the business case for any funding proposition and the
underlying financial health of the body seeking funding are the critical factors influencing
32
lending, investment and rating decisions but the perceived closeness of the body to the
State as owner is also a factor.
The merged entity will also have to manage relationships with other stakeholders such as
An Bord Pleanála and the local authorities, for example as road and planning authorities
and the statutory corporation format may be somewhat more beneficial in this regard.
Securing cooperation and approval for major infrastructure projects is likely to focus on
the merits from a range of public policy perspectives rather than the commercial aspects.
Industrial Relations/ HR The format chosen would not seem to have major implications as regards the application
of employment law or access to labour relations machinery.
Recent experience suggests that the industrial relations climate in a public sector
organisation is influenced by factors such as the expectations of Boards, management,
staff and their trades unions, the organisational culture and management style and
developments in the sector within which the organisation operates rather than the precise
format of the body. A company may be able to present financial challenges more clearly,
to staff or indeed to industrial relations bodies, but may still encounter significant
difficulties.
Institutional Structure – Conclusions
The Group noted that the merged entity Transport Infrastructure Ireland would have a
public policy role in addition to its commercial focus. It concluded therefore that it would
be best to avoid constituting the body as a company under the Companies Acts as this
might not be fully compatible with the discharge of public policy functions; however it
would be appropriate to apply appropriate elements of the Combined Code for Corporate
Governance to the new body e.g. as regards the role of the Board, internal audit etc.
33
8. Organisational Structure of Merged Entity
The Group considered the structural aspects of the merged entity and reached some
preliminary conclusions on structural issues which are set out below. In arriving at these
conclusions, the Group reviewed how NRA and RPA currently carry out their statutory
functions. It also recognised that the incoming management of the merged entity would
wish to take the final decision on the detailed structure of the organisation.
The Group noted that the similarities between the two organisations were significant
despite apparent differences in structure on paper. These differences are a function of
historical differences in the delivery of road and rail infrastructure; differences in how the
two bodies were established, and differences in the specific mandates granted to the
bodies in their founding legislation.
In so far as the structure of an organisation is designed to ensure effective delivery of its
mandate, these differences in history, remit and legal base can be expected to be reflected
in how the body organises and structures itself. Also, as an organisation becomes
established it will customise or mould its structure to reflect its internal culture and
corporate governance requirements.
NRA’s Approach
The NRA has two core functions – improving and managing the national roads network.
The NRA provides Programme Management and Functional Leadership for all of its
improvements activities, while utilising local authority staff in Regional Design Offices,
Consulting Engineers and Contractors for project activities. An exception to this is the
PPP programme which NRA manages directly.
Network Management activities are managed by the NRA but outsourced to the private
sector for activities such as tolling, tunnels, service areas, weather stations, I.T.S and the
like, and to local authorities and Contractors for maintenance and rehabilitation work.
In addition to contracting consulting engineering firms for individual schemes, or groups
of schemes, to perform planning, design, tendering and construction supervision, NRA
retains a number of consulting engineering firms for a variety of engineering services,
such as traffic engineering, design standards and specifications, safety engineering, tunnel
safety management, environmental engineering and bridge inspections.
RPA’s Approach RPA was set up to develop light rail systems and, subsequently, a metro system. Unlike
road building, there was no current expertise in these technologies in Ireland and a
limited pool of expert consultancy familiar with Irish planning and institutional
requirements. Accordingly, RPA‟s approach was to assemble a greater depth of expertise
and resources in-house to manage the principal activities required to allow the delivery of
34
Metro and Luas infrastructure and services through public private partnerships,
conventional contracts and other franchise agreements.
Specifically, RPA has full in-house capability to undertake route selection, including
studies, assessments, evaluation and public consultation required to conclude on a
preferred route for a new metro or Luas line. It also undertakes the necessary alignment
design, structures design, property referencing, safety and environmental and economic
and business impact assessments required to support applications for both statutory
powers and funding approvals.
RPA undertakes in-house all the necessary procurement processes, original design and
contract specifications to allow the award of contracts required to implement and
commission infrastructure and have passenger services delivered.
Contract management and design and construction support for infrastructure contracts are
also primarily carried out by in-house resources and the contract management of the
franchise contracts is similarly resourced.
A broad range of in-house RPA skills are required for testing and commissioning of new
infrastructure. This work is carried out by contractors/operator/RPA working together.
RPA also employs a small team in-house for managing its assets, to ensure that services
are delivered by the operator as contracted and that the assets are properly maintained.
As a result of this approach, a range of activities are supported from within the Agency
by shared technical, engineering and architectural resources and in-house safety, PR,
legal, cost estimation and finance teams.
RPA supplements these resources with consultancy if required to ensure project programs
are met, or to provide specialist input which is either difficult to recruit directly or could
not be used in a sufficiently productive manner based on forecast needs.
Current Organisational Structures in NRA and RPA At the highest level both NRA and RPA have a broadly functional organisation structure.
There are six functional streams in the NRA: Finance & Administration; Tolling and PPP
Finance; Network Management; Regional Management, Programme Management &
Major Schemes; Engineering; Corporate Affairs & Professional Services. In RPA
functional responsibilities are assigned for Finance, Corporate Services, Legal, Project
Services, Light Rail and Design/Construction at the highest level.
RPA also has a direct high level project reporting system organised around four project
directors. Reporting to the project directors are project managers with typically a very
small team who carry out the project work supported from within RPA by shared
technical, engineering and architectural resources and in house safety, PR, legal, cost,
schedule, treasury and finance teams.
35
NRA‟s organisational approach below the highest operation level has local authorities
working for or as agents of NRA and being allowed different degrees of subsidiarity or
independence depending on the function being carried out.
In both organisations the Finance and Corporate Services activities display the expected
similarities required to meet the accounting and governance requirements of a substantial
State agency. However, the assigning of expertise from these central administrative
functions to projects by RPA does not take place in NRA. Also the different „parentage‟
of both organisations leads to considerable differences in approach. This could be
loosely categorised as being due to one being a non-commercial state body and the other
a commercial body. But it also reflects the age of the bodies and the different age profile
of their staff, their wage structure, their superannuation schemes and liabilities. Different
approaches to recruitment and remuneration generate different administrative burdens
and allow, or limit, opportunities for outsourcing of such functions.
Structural/Organisational Considerations in merging the two bodies The Group agreed that a key task for the incoming chief executive and management team
of the merged entity should be to decide on the detail of the organisation structure. The
Group makes the following preliminary recommendations on structure to accommodate
the current approaches of the existing organisations and provide most flexibility for the
new organisation while allowing for the evolution of its work programme. The Group
considered that the structure of the new body should reflect the key deliverables of the
merged entity, namely infrastructure provision and commercial operations.
Infrastructure
A matrix structure would seem most appropriate to manage and direct the infrastructure
activities of the merged entity, comprising Project Teams (e.g. Major Roads, Local and
Regional Roads, Metro, Luas etc. supported by specialist functions (e.g. design, planning,
PPP issues etc.). This would accommodate the current approaches of the existing
organisations and provide the most flexibility for the new organisation while allowing for
the evolution of its work programme.
Commercial Operations
This comprises all commercial activities for which the entity would be directly
responsible. These include: management of property and assets, oversight of transport
service provision, tolling, operations management, management of concessionaires etc.
Again a matrix structure would seem to be appropriate in this area, with small specialist
teams responsible for specific activities, supported by or drawing on either in-house
specialists or external specialists as appropriate. This approach would accommodate the
existing organisation in each body and allow for continuity in the transition to the merged
entity.
Some activities such as land acquisition could, in certain circumstances, be aligned with
either the infrastructure or commercial activities. The structure of the organisation should
be sufficiently flexible so as to allow assignment of such activities to be considered on a
case-by-case basis.
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Support Functions
Activities such as Human Resource Management, Information Technology, Corporate
Communications, Strategic Planning, Transport Policy/Economics advice, Legal Advice,
Board Secretary and Board Support functions can be aggregated into appropriately sized
functional units as appropriate. The object of such organisation would be to optimise the
span of control, ensure efficient delivery of service to the organisation, and enable
appropriate level of governance to reflect the degree of financial and functional
responsibilities assigned to the merged entity.
Board
The Board should be kept to a reasonable size, consistent with the need to ensure
appropriate corporate governance. A large board, with provision for representatives of
various stakeholder groups (e.g. local Govt, Industry, Transport Sector) or with one-third
elected worker directors was considered unwieldy. In this regard, it was noted that the
RPA Board includes provision for one elected staff member and that this works well. The
CEO, but not other Executives, should be ex officio a member of the Board. The key
criterion for a successful Board is the experience and contribution of Board members and
not a representational mandate. Provision would also have to be made for an Audit
Committee and it would be a matter for the Board to decide on other sub-committees and
their structure/membership.
Subsidiaries
The structure should be such that subsidiaries could be established, subject to the normal
Ministerial approvals, to allow for management of certain projects at arms length and to
provide scope for taking on additional activities in the future.
Conclusions on Structure The Group agreed that a key task for the incoming chief executive and management team
of the merged entity will be to decide on the detail of the organisational structure. While
that task should not be pre-empted it is clear that the merged entity will be required to
deliver all of the current deliverables of the two existing bodies and its structure should
reflect that requirement. Given the complexity of that task it would appear that a matrix
structure is the most appropriate way to organise the operational side of the new
organisation and a conventional functional structure should be applied to the support
activities of the organisation.
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9. Risk analysis and mitigation measures
The Steering Group mandated the Working Group to undertake a comprehensive analysis
of the risks associated with merging the NRA and the RPA and to identify a range of
mitigation measures to address these risks.
The Group considered the risks from the perspective of the merged body as well as from
the individual perspectives of the NRA and RPA. They identified risks arising during the
transition process as well as other issues arising from the decision to merge the two
bodies.
In completing its risk analysis, the Steering Group also took account of the wider
implications for other stakeholders including the NTA and these are also dealt with
below.
Risk analysis conducted by Working Group
The Steering Group received an initial risk analysis and associated mitigation strategies
from the Working Group in July 2010. At its request, the CEOs of both organisations
undertook two further rounds of examination of the risks. Based on this work, a
consolidated set of 15 risks and an accompanying range of mitigation measures have been
identified and are presented in this report.
The purpose of the risk analysis process is twofold. First, it sets out for the Minister the
key risks that primarily impact on the amalgamation process. The management of these
risks will be a matter for all the core stakeholders in this process: the Department, the
Department of Finance and the two organisations being amalgamated. The second group
of risks are those that could have a significant impact either on the existing ongoing
business of the two organisations or on the future business, governance procedures and
culture of the new organisation. The management of these risks lies primarily with the
two organisations themselves and their joint implementation team to oversee the
amalgamation, when established.
The resultant list, which was reviewed and agreed by the Steering Group, was categorised
into five groups:
Strategic risk
Reputational risk
Financial risk
Operational risk, and
Organisational / human resource risk.
The assessed risks are also ranked and colour coded to allow for easy visual identification
of the risks and their level of priority. The risks are colour coded as follows: Red:
Impact very high and considerable uncertainty about issues that must be resolved before
effective mitigation can be carried out. This mitigation will require considerable work
and resources. Amber: Impact high, some uncertainty and considerable work required to
38
carry out effective mitigation. Green: Impact medium to high. Little uncertainty
regarding issues and effort involved in implementing mitigation is low to medium.
The full list of proposed actions are set out in detail in the risk table in Appendix 3.
Implications for NTA With respect to the wider implications, care needs to be taken to ensure that the merged
body does not adversely affect the NTA as a national strategic regulatory authority.
Clearly there is no intention to cause such an effect but unforeseen consequences can
arise and the risk needs to be addressed.
With the NTA as strategist, transport planner, and funder of public transport
infrastructure and services in the Greater Dublin Area the lines of responsibility are clear
and locate the RPA as an expert body in the delivery of metro and light rail infrastructure
and as procurer of related transport services. In accordance with the DTA Act 2008,
letters of assignment of functions have issued from the NTA to the RPA on these matters
and the relationships are efficient and clear.
Merging the RPA and the NRA will create a substantial organisation which will have a
direct relationship with the Department with respect to funding for national roads.
Currently the NTA does not fund public transport infrastructure outside the Greater
Dublin Area. An immediate anomaly would therefore arise in that the new merged body
would have a complete national remit while the NTA‟s capital investment remit in
relation to light rail, metro and bus rapid transit would be restricted to the Greater Dublin
Area. As proposed in Section 5, this anomaly can be resolved by the incorporation of
provisions in the legislation to extend the NTA‟s remit in this regard to national level in
tandem with the establishment of Transport Infrastructure Ireland.
Risk Mitigation Measures
The primary actions that are needed to ensure a successful merger are the provision of
early direction and clarity as to how the planning and transition is to be managed and
funded. The Department of Transport, with the agreement of the Department of Finance,
should also give clear direction on the planned designation of the merged body as having
either commercial or non-commercial status. Related to the decision on status will be a
consequential decision on terms and conditions of staff working in the new organisation.
The implications of the merger for pension entitlements will also need to be addressed.
Early clarity is required on who is to have ownership of and authority to deal with the HR
issues arising, and a direction that these issues should be tackled with urgency in advance
of the merger. Also a robust transition procedure from the existing funding arrangements
for RPA and NRA to a unified funding arrangement for the merged body needs to be set
out at an early stage.
The principal actions that are needed to protect the existing and future business,
governance and process of the two organisations both during and following
amalgamation include making an early decision on a mission statement and set of clearly
defined objectives for the new organisation.
39
A communications strategy should also be put in place to communicate to staff the role
and direction of the new organisation, to provide clarity on all issues affecting staff and to
communicate to business partners the commitment to protect existing contractual
relations and deliver on existing contracts.
Clarity of responsibility must be preserved during transition by maintaining the existing
responsibility as regards governance issues within each organisation until the new
organisation has a legal status and there is a smooth transfer of governance to it. A
submission to Revenue should be prepared for the proposed merged entity aimed at
preserving the current tax (VAT) status of railway infrastructure.
A strategic plan should be developed which defines the long-term goals of the new
authority. A five-year business plan should be completed setting out in detail the work
plans for the new authority which should reflect the current work plans of the individual
agencies and the new strategy.
Some of the issues referred to above are more urgent and complex than others. The
Implementation Roadmap summarised in Section 10 below locates the various tasks on
the critical path towards implementation and assigns responsibility for them
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10. Road Map for Implementation
A timeline and a series of key steps or actions to progress the merger of NRA and RPA
are set out below.
In project planning terms, the critical path to formal completion of the merger process
will largely be determined by the time taken to enact the merger legislation. A range of
preparatory actions can be pursued in parallel with the legislative process. These include
actions that can be taken by the Department of Transport and actions that can be taken
jointly by NRA and RPA in advance of the merger.
There are a number of critical milestones on the path towards the merger. These include:
A Government decision to proceed with the merger, including a decision
on the status of the new body as commercial or non-commercial, and to
proceed with the formal drafting of the legislation;
Appointment of a Transition Team (or a series of teams) to manage the
merger process until such time as a CEO designate is appointed;
Preparatory work and ultimately decisions on the terms and conditions of
staff working in the new body and on related transitional arrangements;
Appointment of the board of Transport Infrastructure Ireland;
Appointment of a CEO designate;
Decisions on the structure of the new body and management assignments
within that structure.
With the assistance of the Working Group, the Group considered a number of possible
approaches to sequencing the steps to give effect to the merger. The Group took account
of experience of previous attempts at the merger or rationalisation of State agencies. This
experience led the Group to develop a number of guidelines which informed the
Roadmap proposed below:
Once the decision is taken to proceed with the legislation, the period between the
initiation of actions to give effect to the merger and the commencement date of
the new body should be kept as short as possible; the longer the planning period,
the more likely there is to be drift in the costs and volume of activity associated
with the merger process and the greater the risk of role confusion and distraction
from the on-going work programme of the NRA and RPA - a short, sharp
implementation period is preferable;
A CEO designate would best serve the long-term interests of the Transport
Infrastructure Ireland and provide clear leadership and strategic direction to the
new body from the outset; however the appointment of a CEO designate should
only take place when there is a considerable degree of certainty that the merger
will go ahead;
While some preparatory activities can get underway in advance of the
appointment of a CEO designate, care should be taken to avoid dissipating effort
41
and creating too many parallel work streams or a multiplicity of teams in advance
of that appointment;
Resolving the complex HR issues associated with the merger of a commercial and
a non-commercial State agency always takes longer than anticipated; work should
start on gathering the data and analysis required for HR purposes and on engaging
with staff interests as soon as a decision is taken to proceed with the legislation;
There is scope for joint appointments to the boards of NRA and RPA to prepare
the ground for the board of Transport Infrastructure Ireland; however care should
be taken to avoid the creation of a “shadow” board which dilutes responsibility
and accountability for governance issues in NRA and RPA prior to the legal
establishment of the new body.
Having regard to these guidelines, the proposed sequencing of legislative and preparatory
actions to give effect to the merger and indicative time-lines for completion of the
process are set out below.
The Legislative Process
The timeline to completion of the legislation starts from the time the Minister seeks
Government approval for the drafting of legislation to proceed with the merger, including
a decision on the status of the new body; commercial or non-commercial. Formal
drafting of the Bill by the Office of the Parliamentary Counsel will commence following
Government approval of the proposal. In parallel the Department would conduct a
regulatory impact analysis of the proposed measure.
Typically a period of about 4 months is required for drafting. It is also possible that the
legislation could be fast tracked and drafting completed, say, within 2 months. An
alternative timeline based on this accelerated schedule could also be developed which
assumes a more rapid completion of each stage of the process.
Following Government approval to publish the Bill as drafted, the Bill is placed on the
agenda of one of the Houses of the Oireachtas and the next stage of the legislation
process commences.
The time a Bill takes to pass all stages in the Oireachtas varies depending on the volume
of existing business and the urgency of the particular measure. A five month period,
including one Summer Recess, is a reasonable estimate of the time required for a
reasonably uncontroversial and non-urgent Bill to complete its passage through the
Oireachtas.
Once the Bill becomes law, the Minister will give effect to the amalgamation by signing a
commencement order which specifies the date of establishment of the new body.
Subject to the above schedule of events being adhered to, the commencement order could
be ready for the Minister‟s signature about 12 months after the initial government
decision but realistically this is the minimum time required to effect the merger.
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Parallel Preparatory Actions A number of actions can take place in parallel with the enactment of the legislation.
Board appointments
In respect of the Board of Transport Infrastructure Ireland, the Group recommends that,
where possible and as the opportunity arises, parallel appointments should be made by
the Minister to the boards of the NRA and RPA, i.e. the appointment of the same persons
to each board. Similarly, it may be possible to appoint a joint chairperson to the Boards of
NRA and RPA prior to the commencement date of Transport Infrastructure Ireland.
These board members could have a useful role in preparing the ground for the merger and
building a shared understanding of the mission and culture of the two merging
organisations. It would be a matter for the Minister to decide what role these board
members would have in relation to the merger and the appointment of a CEO designate
prior to the legal establishment of the new body.
CEO designate
The Group considered the question of whether an interim CEO or CEO designate should
be appointed and concluded that a CEO designate would be best positioned to provide
clear leadership and strategic direction to the new body from the outset. However the
appointment of a CEO designate should only take place when there is a considerable
degree of certainty that the merger will go ahead. This is so as to avoid contractual
difficulties with the CEO appointment, minimise the period of overlap between the CEO
designate and the CEOs of NRA and RPA and ensure there is no dilution of responsibility
and accountability for governance issues during the transition period.
Accordingly the Group recommends that the CEO designate be appointed no more than 3
months before the anticipated commencement date of the new body. However, work on
putting in place the arrangements to appoint the CEO should get underway in the
Department of Transport as soon as the Government decision has been taken to proceed
with legislation, given the long lead time involved in recruitment.
Human Resources Team
As indicated above, resolution of HR issues is likely to be a time-consuming process and
should begin early. A Human Resources Team should be put in place as soon as
Government has decided to proceed with the legislation. The role of this team would be
to develop positions on key HR issues such as the employment and superannuation terms
and conditions that will generally apply in the merged body. The implications of the
merger for existing pension schemes and pension entitlements will require expert
assistance at an early stage. Building on the output of the Working Group that assisted
with preparation of this Report, the team would gather data, review the differences and
similarities between the HR policies of NRA and RPA and prepare options for decision
by the Minister and for inclusion in the draft legislation.
The Human Resources Team should put a plan in place for dealing with all major staff
concerns regarding the merger. Adequate time should be set aside for consultation with
43
staff and to deal with merger issues such as the effect of the enabling and „TUPE‟
legislation.5 A mechanism for responding, in an effective and open manner, to issues
raised by staff should from part of that process, while recognising that final decisions on
HR issues cannot be taken until the legislation has been enacted and the CEO designate
appointed.
The plan should nonetheless ensure that adequate details of impending changes are
provided in good time to allow for personal career planning, and should provide full
information on the range of options that may be introduced to manage any staffing
surpluses that might result, including redeployment possibilities within the public sector,
and set out a process for assistance with career development where this is appropriate.
It may be appropriate to appoint an independent third party with appropriate industrial
relations expertise to chair this team which should include representation from the
Departments of Transport as well as both NRA and RPA.
Organisation Structure
At a later stage in the process the CEO designate, supported by both current CEO‟s,
should make decisions on organisation structure and future management assignments. A
plan should be put in place by the CEO designate for the allocation of roles in the new
body; the process of allocating the roles should be demonstrably fair and transparent and
based on skills and suitability. These decisions should not be made until the new body is
just on the point of establishment so as to avoid the risk of undermining the work
programme of NRA and RPA.
The production of a strategic plan and a 5 year business plan should await the formal
establishment of a new body although work on these can get underway once the CEO
designate is appointed.
Transition Team
Once the decision has been made to proceed with the legislation, the CEOs of NRA and
RPA, under the stewardship of their Boards, should scope the transition actions to be
undertaken jointly by the RPA and NRA including the merger programme and indicative
budget. The Group recommends that a Transition Team should only be established when
there is reasonable certainty that the merger is proceeding, say between 3 and 6 months
before the expected commencement date of the new body. The team should be staffed by
an equal number of nominees of NRA and RPA and should begin the detailed planning of
the merger to facilitate the incoming CEO designate.
The Transition Team would review the program of planning and preparatory activities in
the context of any significant developments and report to the CEOs and Department on a
regular basis. Once appointed, the CEO designate would take over the work of chairing
the transition team.
5 the European Communities (Protection of Employees‟ Rights on Transfer of Undertakings) Regulations
2003 (“the TUPE Regulations”).
44
Under the direction of the Transition Team, work would be initiated on specific aspects
of the merger which would be undertaken in the 3 months prior to the establishment of
Transport Infrastructure Ireland, viz:
Systems and Procedures - a detailed analysis and scoping exercise of the requirements of
the merged organisation for IT and management information systems drawn up by
personnel with relevant experience and knowledge;
Finance/funding - a robust transition procedure from the existing funding arrangements
for RPA and NRA to funding arrangements for the merged body, including how the
various funding streams will be handled, and addressing other financial issues such as
VAT treatment/designation of the new organisation. Savings resulting from the merger
would be identified and any costs arising during implementation would be managed using
a contract management system;
Communications – a strategy to keep all external stakeholders informed and reassured.
An agreed mechanism should be put in place by the CEOs of NRA and RPA in
conjunction with the Transition Team, and the CEO designate when appointed, to ensure
that there is absolute clarity on governance issues in both organisations during the
transition and until the new organisation has a legal status in order to avoid creating a
deficit of legal clarity in relation to ongoing business and contracting issues.
A high level Gantt chart showing a schedule by month is attached at Appendix 4.
45
11. Costs and Savings
The Group was asked to identify the cost savings or additional costs arising from the
merger.
The sequencing of the flow of costs and benefits is expected to follow the usual pattern of
a merger operation. There will initially be some extra costs associated with preparing and
implementing the merger. In time the benefits of the merger will begin to come through.
The more tangible benefits and cost savings associated with merging common
administrative systems and reducing the number of boards, chief executives and
corporate support for the boards are expected to become evident first, followed by the
less tangible benefits of creating an organisation with greater expertise, a wider range of
capabilities and the capacity to more efficiently deploy staff across all aspects of the
organisation‟s activities.
It is expected that the intangible benefits to be gained through the proposed merger will,
in the longer term, far outweigh any identified direct savings that would accrue, and it is
the achievement of those longer-term benefits that is the primary driver of the merger
process.
Savings
The wider strategic benefits associated with creating a merged entity were set out in
Section 2 above. These are likely to translate into tangible cost savings in the medium
term. The new organisation will benefit from combining the technical expertise and
experience available in the NRA and RPA. The specialist areas concerned include:
Project management, negotiation and management of PPP contracts, transport planning,
engineering design and advice, planning and environment policies and procedures,
property acquisition and management. The greater range of in-house expertise and skills
available to the new organisation is expected to lead to a reduction in reliance on external
consultants and to the better flexing of in-house resources to meet demand.
The increase in scale due to the merger of both organisations is also expected to generate
benefits through more efficient capital expenditure and an ability to leverage greater
efficiencies in procurement. For instance, the new organisation will be the key player in
the Irish PPP market and its capacity to negotiate and secure finance for PPP projects on
the best possible terms will be strengthened.
The new body will also have a strengthened capacity to interact with local government in
respect of planning matters, development contributions, traffic management etc. In this
context, the new body will have the potential to take on additional infrastructural
functions, particularly in the civil engineering sector (for example on foot of the local
government efficiency review).
There will also be an opportunity to achieve savings in the support functions of the
combined organisation in the medium term. The provision of administrative support
46
services, especially financial management, IT, HR etc., will be enhanced in the new body
and there is scope for rationalisation in this area as the merger process is worked through.
It is expected that the merged organisation will, over time, move to using a single set of
IT systems including management information, financial control and related systems. It is
recommended by the Group that this be achieved through selecting the most appropriate
existing systems and migrating all users to these systems, rather than by implementing
new systems.
There will also be savings in the management structure of the new body and from the
reduction from two to one Boards, Chief Executives and associated support structure.
The potential for savings in support functions needs to be considered in the context of the
administrative budgets of the two merging organisations.
The NRA‟s administrative budget estimate for 2010 is some €14.5 million including
€11.4 million for pay and €3 million for non-pay expenses. However this includes
funding for all 149 authorised employees of the agency, the bulk of whom are assigned to
programme activities. The NRA also has a significant level of consultancy spend
associated with projects it manages directly.
The RPA‟s administrative budget for 2010 is of the order of €10m. That includes payroll,
professional fees, overheads and support costs which are not directly chargeable to
projects. While the RPA has approximately 295 employees in 2010, the vast majority of
those are associated with and chargeable to specific projects.
With regard to the savings from the pooling of administrative and support functions for
HR, IT and Finance, it should be noted that the non-payroll costs associated with these
areas account for a fairly small element of the overall costs in both organisations. The
main saving to the budget of Transport Infrastructure Ireland would therefore have to
come from a reduction in staff costs. There may also be scope for the more efficient
utilisation of employees to replace consultancy support across all programme activities.
While it is not possible to make a precise estimation of savings at this stage, the Group
considers that, in the medium term, these will substantially exceed the €3 million saving
proposed for this measure in the Report of the Special Group on Public Service Numbers
and Expenditure, 2009 and in the medium term will be of the order of €3 to 4 million per
annum.
In order to achieve savings of this order of magnitude in the merged organisation, it will
be necessary to rigorously examine all aspects of spend on payroll, non-payroll
administrative spend and consultancy. This will be a key task for the incoming Chief
Executive who should undertake a systematic review of all overhead spend on support
functions, infrastructure and the management of commercial operations.
47
Costs The Group also recognises that costs directly associated with the merger will occur
during the transition process and the first two years of operation of Transport
Infrastructure Ireland as streamlined systems are put in place and bedded down.
In considering the costs that can arise in the transition to a merged entity, the Group
distinguished between internal or “opportunity” costs arising from the diversion of senior
management time to merger activities and once-off external expenditure required as a
result of the merger.
Staff time
The Group has stressed in Section 10 above that every effort should be made to confine
the time involved in preparing for the merger in the NRA and RPA to a maximum period
of between 3 and 6 months and to minimise the number of work streams and teams
involved in merger activity. Nonetheless, the savings and benefits alluded to above will
only be achieved if the merger process is properly and tightly managed.
Transition to the merged organisation will inevitably require a substantial investment in
terms of management and staff time. This has a significant opportunity cost in terms of its
impact on the ongoing work programme of both organisations. It is assumed that there
will be no provision for additional payroll costs on foot of the merger process and
therefore it is considered that this resource requirement should be capable of being met
from within the existing administrative budgets of the NRA and RPA. However the
impact on the ongoing work programme will need to be carefully monitored and managed
given the key deliverable identified earlier of ensuring focus is maintained on the delivery
of key transport projects during the transition to the new institutional framework.
Once-off transition costs
The Working Group considered the range of possible merger planning and
implementation costs, apart from staff time, which could arise from the commencement
of the merger process. These include the specialist support likely to be required in
respect of, for instance, financial management systems, IT, pensions, actuarial and human
resource issues. These once-off costs should be carefully monitored throughout the
transition process, using a project management approach, and every effort should be
made to keep them to a minimum. These costs should also be met from within existing
administrative budgets.
More significant costs could arise if completely new IT and financial management
systems were introduced but, as stated earlier, the Group recommends that a choice
would be restricted to one or other of the existing systems.
Accommodation
Ideally, and to get the full benefits of the merger, the staff of NRA and RPA should
migrate to a common headquarters. However the costs of this could be prohibitive given
break clauses in existing leases, fit out costs etc. While migration to a common office
location is not a pre-requisite for the merger, the Group notes that this is a highly
48
desirable medium term objective given the operational benefits, synergies and positive
impact on corporate culture and identity that could ensue. It is proposed that the
provision of a single office location is kept under review and, as least cost opportunities
arise to consolidate the location of staff, these should be availed of.
Meanwhile it is vital that plans are made to unite the two existing organisations into a
cohesive unit and co-location of certain teams should form part of this. There will be
some costs associated with a limited co-location of staff of certain functional or project
groupings. In the short term it would also be worthwhile investing in improved
communications and data links between the separate locations and creating appropriate
opportunities for mobility of staff between the locations.
Pensions
Another area where costs could potentially arise is in respect of pensions. The RPA
operates a defined contribution scheme and a defined benefit scheme (the latter scheme
covers staff who transferred from the CIE (1951) defined benefit scheme). The RPA
Accounts for 2009 show a small actuarial surplus of €192,0006 on the RPA defined
benefit scheme. The NRA operates a defined benefit scheme established in line with the
“model scheme” used for non-commercial State bodies. The NRA 2009 accounts
recognize a sum of €48.9m in respect of the amounts owing from the State for the
unfunded deferred liability for pensions. Both the NRA and RPA account for pensions in
accordance with FRS 17 standards and requirements.
The merger of the NRA and RPA does not of itself change the position regarding assets
and liabilities of the various pension schemes or the rights and obligations of employers
and employee members of the schemes. However, it will be essential to provide in the
enabling legislation for protection of the superannuation rights of persons transferring
from both the NRA and RPA to Transport Infrastructure Ireland. It will be a matter for
the new body to consider what new superannuation arrangements should be put in place
for the future, including for new employees.
Reducing staff numbers
In the absence of any Government decision on a scheme of voluntary redundancy for
staff of State agencies, as part of wider proposals to reduce public sector employment
numbers, no assumption has been made that such a scheme will be in place for the staff
of NRA and RPA.
Instead, it is envisaged that the reduction in surplus staff would be achieved either by re-
assignment to new tasks within the organisation, by natural reduction over the longer
term, as staff retire or resign, or by re-assignment to the wider public service.
The Croke Park agreement provides for the re-assignment of staff of non-commercial
State bodies to the wider public service. Should the question arise of re-assigning RPA
staff, who have commercial state body status, to the wider public service, the Group
6 RPA Annual Report 2009: Notes to the Financial Statemenrs, Note 21.
49
recommends that discussions take place with staff with a view to facilitating voluntary
arrangements for such re-assignments.
In the event that a scheme of voluntary redundancy were to be introduced, the once-off
costs associated with such a scheme would need to be factored into the overall costs of
implementing the merger. This would add to costs in the short term but speed up the
delivery of year on year savings in the administrative budget of the merged body.
Conclusions on Costs and Savings The benefits, both tangible and intangible, to be gained from the merger are considered
by the Group to substantially outweigh any immediate costs incurred in putting the
merger through. These benefits will accrue over the longer term as the amalgamated
body integrates its systems and develops a more effective presence in the market place
reflecting its greater scale and level of expert knowledge.
The requirement to dedicate staff resources to making the amalgamation process work is
recognised. The immediate costs associated with implementing the merger should be
capable of being met from within the existing administrative budgets of the NRA and
RPA.
The Group proposes that:
Costs and savings arising from the merger are carefully tracked throughout the
merger process;
Costs associated with effecting the merger are met from the administrative
budgets of the NRA and RPA;
A reduction of the order of €3 – 4 million is made in the combined annual
administrative budgets of the NRA and the RPA from the third full year of
operation of Transport Infrastructure Ireland to reflect savings arising from the
merger following an initial investment in making the merger a reality; the precise
reduction and phasing of administrative budget cuts to be decided in light of more
detailed information obtained on costs and savings during the merger process;
The incoming Chief Executive should undertake a systematic review of all
overhead spend on support functions, infrastructure and the management of
commercial operations to ensure these savings are realised.
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Appendix 1 Membership of Steering Group
Ms Julie O‟Neill, Chairperson
Mr Fred Barry, CEO and Board Member, National Roads Authority
Ms Anne Butler, Board Member, National Roads Authority
Mr Frank Allen, CEO and Board Member, Rail Procurement Agency
Mr Tom Wall, Board Member, Rail Procurement Agency
Mr Gerry Murphy, CEO and Board Member, National Transport Authority
Mr John Murphy, Assistant Secretary, Department of Transport
In attendance: Mr Matt Benville, Principal, Department of Transport
Secretary: Margaret Malone, Department of Transport.
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Appendix 2 Membership of Working Group
Mr Matt Benville, Chairperson, Department of Transport
Mr John Maher, National Roads Authority
Mr Declan Wylde, Railway Procurement Agency
Mr Pat O‟Donoghue, Railway Procurement Agency
Secretary: Margaret Malone, Department of Transport
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Appendix 3 Merger Risk Register
National Roads Authority / Railway Procurement Agency Merger Risk Register
Risk Ref. No.
Risk Mitigations / Controls /
Principal Risks
Category Management Actions
1 Lack of strong rationale for the new body, including a clearly defined set of objectives, which is accepted by staff and relevant stakeholders.
Strategic Communicate that the new agency will, through combining the strengths of NRA and RPA, be a world-class organisation with the ability to provide, manage, maintain and operate roads, light rail and metro and other infrastructure and services in a safe, cost effective and sustainable manner in order to contribute to meeting Ireland’s economic social and environmental objectives for the 21st century.
Amber Communicate that the strength of the new body will largely rely on the quality and commitment of its personnel and that the new agency will be committed to providing a positive working environment and opportunities for its staff
Arrange for staff from both agencies to inform each other on their current remit and experience and use this opportunity to foster a positive team building atmosphere
Communicate that the new body will value and maintain the existing and proactive approach of the current organisations in its interaction with stakeholders.
2 Damage to contractual relations and contract delivery
Strategic Identify contracts of strategic importance and meet the counterparties and explain that legislation will ensure that the legal status of their contracts with NRA and RPA is maintained.
Green Explain that the current legal status of both organisations will remain in place and responsibility for all aspects of the commercial relationship will continue with those agencies until the new entity is formally established and relevant provisions commenced.
Ensure in as much as this is practical that the continuity of those dealing directly with contractors is maintained.
3 Corporate identity and culture of the two organisations clash or are misaligned leading to dysfunctional new organisation
Strategic Initially identify what is the prevailing culture in the existing organisations and identify the differences.
Define a new culture that supports the objectives of the new organisation and define the behaviours that are necessary to make it work effectively.
Red Invest management time in ensuring that this new culture is promoted.
Deal with the negative view among some members of staff in both organisations as regards the merits of the merger.
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Deal with the current situation whereby NRA has a significant strategic role as a Sanctioning Authority in relation to the national road network whereas RPA in mainly an implementing agency with the NTA as their Sanctioning Authority.
Endeavour to prevent conflict due to differing views on the merits of investment in roads versus public transport projects.
Endeavour to prevent conflict due to the perception that one organisation may be seen as taking over the other one.
4 The transition to a
merged organisation results in loss of momentum for projects that are being planned and implemented. This risk is greatest in terms of the completion of planning for Metro North, procurement for enabling works, achieving financial close for the Metro North PPP and commencement of construction.
Strategic Emphasise to existing project teams the importance of continuing to meet their targets for project delivery.
Explain to counterparties that the legislation to implement the new organisation will ensure that the existing contractual situations will not be altered and the risk to them will not be increased by the merger
Amber Ensure that it is a requirement of the merger process not to disrupt the working of the existing project teams and to maintain the continuity of key project support personnel.
5 Reduction in the high standard of corporate governance especially during the transition period which may give rise to a lack of clarity or dilution in responsibility for decisions
Strategic Maintain the existing clear levels of responsibility as regards governance issues until the new organisation has a legal status
Make an early decision on the commercial or non commercial nature of the merged entity
Red Develop a realistic program for integration with linkages to the critical milestone of the enabling legislation recognising that lengthy periods of transitional governance will inevitably lead to confusion and loss of project momentum
Develop and agree a mechanism in both existing organisations for the smooth transfer of governance to the new organisation ensuring that there is no lack of clarity of responsibility during transition
6 The longer term
benefits of the proposed merger are not realised
Strategic Develop a strategic plan which defines the long term goals of new body bearing in mind its remit as defined in the enabling legislation
Develop a five year business plan setting out in detail the work plans for the new agency which should reflect the current work plans of the individual agencies
Red Monitor the implementation of the business plans to ensure that the expected outcomes are being achieved
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Invest management time in ensuring that the legacy issues are monitored and dealt with during the early years of the new body
Maintain and manage a corporate risk register paying particular attention to any residual risks and difficulties that have arisen during the transition process
7 Damage to the reputation of the new agency
Reputational Emphasise to staff, suppliers and clients that the merged organisation intends to retain and build on the positive characteristics of NRA and RPA and will have a strong commercial orientation in delivering value for money.
Green
Ensure that the current emphasis on project delivery and the quality of public services is maintained.
Ensure that the combined experience and the lessons learned in both organisations are reflected in the delivery of new projects
Engage in a public relations campaign emphasising the merits of the new organisation
8 Damage to the long standing relationships of NRA and RPA with key stakeholders such as local authorities, public representatives, private and public sector companies, the media and government departments
Reputational Draw up a list of the critical relationships and organisations whose input and co-operation is key to the effective functioning of the two existing organisations
Green
At the appropriate time, inform the relevant stakeholders in relation to the creation of the new body and emphasise that the same proactive approach and value for money will be maintained.
Ensure that systems and processes within the new organisation are in place to ensure that the existing relationships are maintained and developed.
9 Poor definition of the program and costs required to deliver the expected benefits of a successful merger
Financial Define the scope and draw up a realistic program and cost estimate for the merger including a realistic risk provision
Red
Identify savings resulting from the merger and carry out a financial analysis to confirm that value for money will be achieved.
Manage the cost during implementation using a contract management system
10
Amber
Loss of current tax (VAT) status of RPA within the merger
Financial Prepare a submission to Revenue for the proposed merged entity based on that previously submitted by RPA. That would define the merged entity as principally an Infrastructure provider. Subsidiary activities would also require to be dealt with and an overall business plan would be required in order to assist revenue in arriving at decisions as regards tax treatment of these.
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11 Implementation of the merger affects the day-to-day operational effectiveness in delivering public services
Operational Identify the critical services that both organisations are currently managing.
Ensure that it is an initial requirement of the proposed new structure not to disrupt the working of the sections involved in delivering services to the public.
Green Develop a strategy in relation to integrating service delivery teams to ensure that the integrated teams continue to work effectively.
Ensure that there is a proper management process in place to deal with logistical issues associated with the merger
12 Poor performance of management information systems and transaction processes
Operational Carry out a detailed analysis of the requirements of the merged organisation for management information systems using personnel with relevant experience and knowledge
Amber Assemble the specifications, designs and costings for required systems. The nature of the organisation (commercial or non commercial) and the proposed strategy for delivering the new entities business plan would be key considerations in the design phase.
Develop and resource a project management plan for the implementation of the systems
13 Initial reduction in the effectiveness of internal controls, transaction and management processes
Operational Create a risk register and carry out a risk evaluation of those assets and transactions most at risk during the change process
Prepare a list of all the new controls and processes that are required in the new organisation
Amber Mobilise a team to determine what is required by way of processes and controls, determine a budget for this work and a plan for implementing it.
Train staff in the new processes
Do not change over to the new systems until there is a high level of confidence that they are working
Provide extra resources in the initial period to deal with and correct problems which will inevitably arise especially given that a significant number of people will not be familiar with the new systems and processes
14 Loss of morale in both organisations resulting in a loss of productivity and commitment with a consequent effect on the functioning of the new organisation
Organisational HR
Ensure that there is a credible strategy and plan in place which can be used as a basis for dealing with all major staff concerns regarding the merger
Set up a mechanism for responding, in an effective and open manner, to issues raised by staff
Red Ensure that sufficient resources are available to implement this feedback process
Issue an assurance that the current employment status of staff will not be affected by the merger
Accept that loss of morale will happen to some extent and the objective should be to minimise it and ensure that there is not a long term effect
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15 Re-organisation creates uncertainty among staff in relation to job security, roles within the new organisation, location of workplace, lack identification with the new organisation etc.
Organisational HR
Ensure that there is a credible plan regarding allocation of roles in the new agency which is fair and transparent.
Provide adequate details and assurances in relation to people who may not have a continuing role in the new organisation
Red Offer assistance with career development where this is appropriate
Invest management time in developing a positive attitude of staff as regards being proud to work for the new organisation
Ensure that positions are filled based on skills/suitability rather than permanence of previous employment
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Appendix 4 Merger Timeline
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Appendix 4a Merger Timeline (A3 paper Size)