Steering Group on the Merger of the National Roads Authority and the Railway Procurement Agency

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1 Steering Group on the Merger of the National Roads Authority and the Railway Procurement Agency 1

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3 CONTENTS: EXECUTIVE SUMMARY INTRODUCTION THE OPPORTUNITY MISSION STATEMENT REMIT OF TRANSPORT INFRASTRUCTURE IRELAND FUNDING ARRANGEMENTS AND KEY RELATIONSHIPS INSTITUTIONAL STRUCTURE KEY CONSIDERATIONS INFLUENCING CHOICE OF STATE BODY FORMAT RATIONALE FOR INSTITUTIONAL STRUCTURE NATURE OF BODY REQUIRED FOR FUNCTIONS OF TRANSPORT INFRASTRUCTURE IRELAND SOURCE OF FUNDING FINANCIAL AND CORPORATE REPORTING ASSET ACCOUNTING CORPORATE GOVERNANCE AND ACCOUNTABILITY ISSUES HUMAN RESOURCES ISSUES COMMERCIAL OR NON-COMMERCIAL - CONCLUSIONS NATURE OF STATUTORY ENTITY COMMERCIAL STATE BODIES: TYPES OF ORGANISATION POWERS AND FUNCTIONS CORPORATE GOVERNANCE RELATIONS WITH CONTRACTORS AND OTHER STAKEHOLDERS INDUSTRIAL RELATIONS/ HR INSTITUTIONAL STRUCTURE CONCLUSIONS ORGANISATIONAL STRUCTURE OF MERGED ENTITY NRA S APPROACH RPA S APPROACH CURRENT ORGANISATIONAL STRUCTURES IN NRA AND RPA STRUCTURAL/ORGANISATIONAL CONSIDERATIONS IN MERGING THE TWO BODIES Infrastructure Commercial Operations Support Functions Board

4 Subsidiaries CONCLUSIONS ON STRUCTURE RISK ANALYSIS AND MITIGATION MEASURES RISK ANALYSIS CONDUCTED BY WORKING GROUP IMPLICATIONS FOR NTA RISK MITIGATION MEASURES ROAD MAP FOR IMPLEMENTATION THE LEGISLATIVE PROCESS PARALLEL PREPARATORY ACTIONS Board appointments CEO designate Human Resources Team Organisation Structure Transition Team COSTS AND SAVINGS SAVINGS COSTS Staff time Once-off transition costs Accommodation Pensions Reducing staff numbers CONCLUSIONS ON COSTS AND SAVINGS APPENDIX 1 MEMBERSHIP OF STEERING GROUP APPENDIX 2 MEMBERSHIP OF WORKING GROUP APPENDIX 3 MERGER RISK REGISTER APPENDIX 4 MERGER TIMELINE APPENDIX 4A MERGER TIMELINE (A3 PAPER SIZE)

5 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, 3

6 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: 4

7 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 21 st 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. 5

8 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: 6

9 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 7

10 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 8

11 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 subcommittees 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. 9

12 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. 10

13 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 11

14 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 12

15 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 13

16 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 reassignments. 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 14

17 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. 15

18 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 11 th 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; 16

19 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. 17

20 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. 18

21 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; 19

22 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). 20

23 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 s 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 21 st century. 21

24 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. 22

25 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. 23

26 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. 24

27 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. 25