option for the future delivery of driver in - dttas.ie · pdf fileoption appraisal for the...

Option Appraisal for the Future Delivery of

Driver Testing Services in Ireland

May 2011

Option Appraisal for the Future Delivery of Driver Testing Services

Contents 1. Executive Summary....................................................................................................... 1 Background...........................................................................................................................................................1 Project Terms of Reference ..................................................................................................................................1 Approach and Methodology.................................................................................................................................1 RSA Progress to Date............................................................................................................................................2 Addressing Service Delivery Issues ....................................................................................................................... 3 Addressing the Cost of Driver Testing Provision................................................................................................... 4 The Driving Test Funding Gap...............................................................................................................................6 The Croke Park Agreement...................................................................................................................................7 The Outlook for RSA Costs....................................................................................................................................7 Forecast Demand..................................................................................................................................................8 Potential Estate rationalisation ..........................................................................................................................10 Outsourcing to a Private Provider ...................................................................................................................... 10 Fee levels ........................................................................................................................................................11 Impact of TUPE (Transfer of Undertakings (Protection of Employment)).......................................................11 Quality and Standards ....................................................................................................................................12

International Benchmarking...............................................................................................................................12 Retained versus Outsourced Comparison .......................................................................................................... 13 Outsourced test fee ........................................................................................................................................13

Exchequer level analysis .....................................................................................................................................13 Conclusions and Next steps................................................................................................................................16

2. Introduction................................................................................................................ 18 Background.........................................................................................................................................................18 Project Terms of Reference ................................................................................................................................18 Approach and Methodology...............................................................................................................................19

3. Driver Testing in Ireland – RSA Progress to Date ......................................................... 22 Introduction........................................................................................................................................................22 Addressing Service Delivery Issues ..................................................................................................................... 22 Addressing the Cost of Driver Testing Provision................................................................................................. 25 Direct Costs.....................................................................................................................................................26 Indirect Costs ..................................................................................................................................................29 Other Costs ‐ The RSA’s Estate........................................................................................................................ 31 Exchequer costs of Estate ...............................................................................................................................31 The Impact of Past Efficiencies on Unit Costs ................................................................................................. 32 The Driving Test Funding Gap......................................................................................................................... 33 Summary.........................................................................................................................................................34

4. The RSA – The Outlook to 2015................................................................................... 35 Introduction........................................................................................................................................................35 The Croke Park Agreement.................................................................................................................................35 The Outlook for RSA Costs..................................................................................................................................37 Forecast Demand................................................................................................................................................41 DKM Forecasts....................................................................................................................................................43 Potential Estate rationalisation ..........................................................................................................................48 Summary.............................................................................................................................................................49

5. Outsourcing to a Private Provider ............................................................................... 50 Introduction........................................................................................................................................................50 Outsourcing Cost Comparison Process............................................................................................................... 50


Operator Involvement ........................................................................................................................................50 Responses...........................................................................................................................................................51 Sensitivity tests ...............................................................................................................................................52 Charging Mechanisms ....................................................................................................................................53 Fee levels ........................................................................................................................................................53 VAT .................................................................................................................................................................54 Test volumes ...................................................................................................................................................54 Impact of TUPE (Transfer of Undertakings (Protection of Employment)).......................................................54 Staffing levels..................................................................................................................................................55 Staff training...................................................................................................................................................56 Quality control ................................................................................................................................................56 Estates ............................................................................................................................................................56 IT Systems .......................................................................................................................................................56

International Benchmarking...............................................................................................................................56 Summary.............................................................................................................................................................57

6. Assessment of the Strategic Options for the Delivery of the Test Service.................... 58 Introduction........................................................................................................................................................58 Direct Delivery by RSA ........................................................................................................................................58 Impact of RSA estate rationalisation .............................................................................................................. 61

Outsourcing Driver Testing Services................................................................................................................... 62 Outsourced test fee ........................................................................................................................................62

Exchequer level analysis .....................................................................................................................................62 Monitoring Standards.....................................................................................................................................65

Summary of key factors in outsourcing consideration....................................................................................... 65 7. Summary and Conclusions .......................................................................................... 67 Driving Test Services, progress so far ................................................................................................................. 67 Potential for further efficiency ...........................................................................................................................67 Outsourcing cost comparison.............................................................................................................................67 Arguments for retention of public sector delivery of service.............................................................................68 Conclusions and Next steps................................................................................................................................68

APPENDICES

Appendix1: International Benchmarking

Appendix 2: DKM Model – Underlying Assumptions

Appendix 3: Letter to and Request for Information from Operators


Important Notice

This report (the ‘Report’) has been prepared for the Department of Transport, in accordance with the terms of

our engagement, and for no other purpose. FPM Accountants and DKM Economic Consultants do not accept or

assume any liability or duty of care for any other purpose or to any other person to whom this report is shown or

into whose hands it may come save where expressly agreed by our prior consent in writing.

Whilst the information in this Report has been prepared in good faith, it does not purport to be comprehensive

or to have been independently audited or verified. FPM Accountants and DKM Economic Consultants do not

accept any responsibility for the fairness, accuracy or completeness of the information so provided and shall not

be liable for any loss or damage arising as a result of reliance on the Report or on any subsequent

communication, save as provided for under the terms of the engagement.

In the event that, pursuant to a request which you have received under the Freedom of Information Act 1997

and Amendment 2003 (as the same may be amended or re‐enacted from time to time) or any subordinate

legislation made thereunder (collectively, the “Legislation”), you are required to disclose any information

contained in the Report, we ask that you notify us promptly and consult with us prior to disclosing such

information. You agree to pay due regard to any representations which we may make in connection with such

disclosure and to apply any relevant exemptions which may exist under the Legislation to such information.

If, following consultation with us, you disclose any such information, please ensure that any disclaimer which we

have included or may subsequently wish to include in the information is reproduced in full in any copies

disclosed.

Acknowledgements

FPM Chartered Accountants and DKM Economic Consultants would like to thank the Department of Transport,

Department of Finance. the representatives of the four RSA staff unions and particularly the Road Safety

Authority, its management and staff who all gave significantly of their time and knowledge in the preparation of

this report.

We would also like to acknowledge the contribution made by the three operators who, without advantage or

favour, went to significant ends to prepare information for use in this report.

©2011 FPM Chartered Accountants and DKM Economic Consultants. All rights reserved.


1

1. Executive Summary Background

In 2009 the Department of Finance published the Report of the Special Group on Public Service

Numbers and Expenditure Programmes, which included a number of recommendations in relation to

the organisation and funding of the Road Safety Authority (RSA).

Specifically, the Group noted that the allocation for the RSA was boosted in 2008 to deal with a large

backlog in driver test applications and also to provide a more intensive public information campaign

on road safety.

“With the backlog largely dealt with, it is reasonable that the allocation for the RSA return to

2007 levels, allowing for the application of appropriate inflators. On this basis, a reduction of

€4.2m is recommended. This would still maintain a high level of expenditure on road safety by

historical standards.”

While the Group also acknowledged the fact that the increased test fee agreed by the Minister for

Transport should offset some of the impact of the proposed €4.2m reduction, it went on to strongly

recommend that:

“at a minimum, the RSA's driver testing and instructor testing/registration activities be run

on a full cost‐recovery basis and that in the longer term, the possibility of making the RSA

entirely self‐funded should be pursued.”

It pointed to the fact that a proportion of driving tests had already been outsourced during initiatives

to reduce the driver testing waiting list and suggested that “outsourcing should now be extended to

apply to all driving tests”.1

Project Terms of Reference

In response to these recommendations, the Department of Transport commissioned the consultants

to undertake an option appraisal to assist in determining whether the driver testing service should

continue to be directly delivered by the RSA or should be outsourced by the RSA to a service delivery

partner.

Approach and Methodology

There were a number of key stages involved in the methodology used in identifying and assessing the

options available to the Department in relation to the delivery of driver testing. Essentially, the first

major element involved understanding the current organisation of driver testing in Ireland – how the

system has evolved and developed in recent years. These findings are summarised in Chapter 3.

1 http://www.finance.gov.ie/viewdoc.asp?DocID=5906&CatID=45&StartDate=01+January+2009&m=), page 216


2

It was also felt to be extremely important during this phase to try to capture the series of efficiency

improvements that have been implemented by the RSA since 2007 to ensure that its efforts to close

the funding gap are fully acknowledged.

Having established the current position regarding the delivery of driver testing in Ireland and the

scale of the funding gap to be bridged, Chapter 4 involved a consideration of how the service may

change in coming years, if further planned efficiencies under the Croke Park Agreement are

implemented. In addition, the analysis also focuses on potential changes in demand over the forecast

period and how this might impact on the RSA’s cost profile over the period.

Chapter 5 examined the potential cost of the service if delivery of the driver testing service were out‐

sourced to a private operator. As part of this examination, the consultants investigated service

delivery models in other EU countries and in a number of countries world‐wide. The results of this

research are summarised in Chapter 5 but set out in more detail in Appendix 1. While it is clear that

the public provision is by far the most prevalent form of service delivery, there are a number of

interesting alternative models that appear to be working effectively and delivering value for money.

While this provides an interesting back‐drop to the appraisals of options for Ireland, the critical input

into Chapter 5 was derived from a survey of three private companies who agreed to provide

information on the likely costs associated with the delivery of the service. This was vital in enabling

the consultants to develop a shadow model to check the possible cost‐savings associated with private

provision.

Chapter 6 focused not only at the RSA organisational level but also examined the implication of each

option for the Exchequer as a whole. In this context, it was important to ensure that any possible

constraints – including regulatory constraints, legal constraints or constraints imposed by initiatives

such as the Croke Park Agreement – were identified and taken into account in the analysis.

Stakeholder consultation played an important role in all stages of the review process and in verifying

our understanding and interpretation of data provided. The RSA’s management and staff were very

helpful in providing information and statistics on various aspects of the driver testing service. In

addition, the four Unions representing all grades of staff were consulted and were also very

forthcoming with views and opinions on the possible options open to the Department in relation to

driver testing.

RSA Progress to Date

Driver testing plays an important role in ensuring that driver competency is maintained at a high

standard and this in turn is central to efforts to reduce the number and severity of accidents on Irish

roads. In 2006, the RSA was created under the Road Safety Authority Act (2006) and took over

responsibility for the delivery of the service2, with the Department of Transport retaining

responsibility for oversight of the service.

2 The Bill to create a Driver Testing and Standards Authority was first published in 2005 but as the Bill progressed through the Oireachtas it was re‐titled the Road Safety

Authority Bill and additional service delivery functions were added to the new Authority. This included functions previously undertaken by the Roads Authority (NRA) and

the National Safety Council (NSC). In addition to driver testing and training, under the Act, the RSA is also responsible for vehicle standards and certain enforcement

functions, road safety promotion, driver education and road safety research.


3

Since the creation of the RSA significant improvements have been achieved both in terms of road

safety and also in relation to the delivery of driver testing and it is important in assessing the options

for the future delivery of the service, that these improvements are recognised and acknowledged.

Addressing Service Delivery Issues

When the service was transferred to the Road Safety Authority, it was transferred with a significant

backlog of applicants and very long waiting times for candidates. According to figures cited in the

C&AG report, by 2006 when the RSA came into existence, the numbers on the waiting list had

reached approximately 140,000 and the average waiting time for those tested was close to 30 weeks.

An outsourced partner, SGS, was engaged by the Department of Transport in July 2006 and when the RSA was created, it also took over management of this contract. That contract provided (of necessity) for significant RSA involvement in the delivery of the service including dealing with complaints and providing elements of IT and customer query backup. At the same time, the Minister for Transport also set an ambitious target for the RSA to reduce the national average waiting time to ten weeks by June 2008. As a result, this necessitated a significant scaling up of capacity and in consequence, the RSA conducted a public procurement process and awarded a contract for a second period to SGS in June 2007.3 (SGS delivered 6,260 tests in 2006, 50,944 in 2007 and 220,752 tests in 2008)4. In addition to the very significant test backlog that the RSA inherited, the change in policy in relation to

provisional licenses in 2007 resulted in a further sharp spike in test applications.

The following chart illustrates the growth in demand for tests over the period from 1991 to 2010.

The chart serves to highlight the widening gap between applications and tests conducted in the mid

to late 1990s and early 2000s as “supply” failed to keep pace with demand. It also highlights the

very sharp spike in applications in 2007 and 2008 due to the change in the regulations regarding

provisional licenses.

Figure 1: Demand and Supply of Driving Tests

Source: RSA

3 C&AG special report and RSA response 4 Source: RSA End of Year Reports


4

The Comptroller and Auditor General Special Report into Driver Testing5 (the C&AG Report) acknowledged the significant improvements that have been achieved since the driver testing service has been under the control of the RSA. More recent figures confirm that the RSA is continuing to achieve its target for waiting times and as a result, the average waiting time for a test at the end of 2010 was less than 10 weeks.

Addressing the Cost of Driver Testing Provision

Now that many of the long‐standing quality and customer service issues have been addressed, the

RSA has been able to start to focus its attention more on the cost‐effectiveness of the service and has

started to implement organisational changes designed to bridge the funding gap which has

historically existed in relation to driver testing.

The following table summarises some of the key financial indicators for the RSA’s driver testing

service from 2007 to 2010. This shows the direct and indirect costs associated with the provision of

driver testing as provided by the RSA. Before examining these figures, it is important to

acknowledge the improvements that have been achieved by the RSA in recent years – against a very

volatile and changing backdrop. It is also important when considering the cost information presented

below that the RSA is only now beginning to achieve something close to a “steady state” situation.

Each of 2007, 2008 and 2009 were exceptional years and 2010 is the first year RSA might consider as

‘typical’ going forward.

Table 1: RSA ‐ Summary of Key Financial Indicators

2007

€

2008

€

2009

€

2010

€

% change 07‐

10

Direct Costs 16,011,481 16,638,892 11,472,023 9,860,259 ‐38.4% Indirect Costs 2,200,043 3,033,422 3,332,647 3,011,158 36.9% Direct & Indirect Costs 18,211,524 19,672,314 14,804,670 12,871,417 ‐29.3% Estate Costs (OPW)6 1,467,505 1,467,505 1,467,505 1,467,505 0.0% Full Costs 19,679,029 21,139,819 16,272,175 14,338,922 ‐27.1% Tests Delivered* 179,818 199,425 154,429 144,556 ‐19.6% Direct Unit Costs 89.04 83.43 74.29 68.21 ‐23.4% Direct/Indirect Unit Cost 101.28 98.65 95.87 89.04 ‐12.1% Full Unit Cost 109.44 106.00 105.37 99.19 ‐9.4%

Source: RSA

* Tests delivered includes tests actually conducted and also those where the candidate has failed to show up for the test or

where the test has not been able to proceed because of the condition of the vehicle or because of problems with paperwork

e.g. lack of insurance etc.

In addition, estimates from the OPW on the annual cost of the provision of the RSA’s test centres are

included at approximately €1.47m . Greater than half of the lease costs borne by OPW on behalf of

the RSA are longer term commitments in excess of 10 years and it is therefore a consideration that no

matter whether or not RSA or an outsourced operator requires the use of these locations in the

future, the cost will continue to be carried by the Exchequer.

5 Comptroller and Auditor General Special Report, Department of Transport, Driver Testing in the Road Safety Authority, November 2009. 6 OPW provided figure for cost to OPW of RSA premises


5

Thus any cost saving achieved by RSA in relation to the estate management for Driver Testing will be

to the benefit only of the RSA as an organisation but not to the public purse overall until such time as

the leases expire naturally or by agreement.

The RSA does not account for these as it does not bear these costs directly. However, to arrive at an

estimate of the full cost of driver testing, it is important that these costs are taken into account as,

although they are not borne by the RSA, they are a cost to the Exchequer. These figures are then

used to derive unit costs which are based on the number of tests delivered7 by the RSA over the same

period. The current cost to OPW of the leases would add approximately up to €10 to the cost per

test delivered.

As the figures illustrate, the direct costs of delivering the service, which are predominantly related to

staff and staff‐related costs, are by far the most significant element of overall costs, accounting for

almost 70% of total costs in 2010. These have, however, fallen by over 38% since 2007.

In contrast, indirect costs, which relate to the allocation of central corporate service costs to Driver

Testing, increased by approx 36% over the same period but have reduced somewhat from 2009 to

2010. Despite this, the full cost of the service, even including the OPW estimates for the cost of

driver test centres, has fallen by over 27% over the period.

The following tables demonstrates the reduction in staff numbers over the period.

Table 2: RSA Driver Testing Staff by Grade (Full Time Equivalents)

2007 2008 2009 2010 % change 07/10

Chief Tester 1 1 1 1 0.0%

DT Supervisors 11 10 10 10 ‐9.1%

Driver Testers 133 127 116 112.5 ‐15.5%

Principal Officer 1 1 1 1 0.0%

Assistant Principal 1 1 1 1 0.0%

HEO 1 1 1 1 0.0%

EO 8 8 8 5 ‐37.5%

Clerical Officers 63 51 44 34.7 ‐44.9%

Total 219 200 182 166.1 ‐24.1%

Technical – No. 145 138 127 123.5 ‐14.9%

Admin – No. 74 62 55 42.7 ‐42.3%

Technical ‐ Share 66.2% 69.0% 69.8% 74.3%

Admin ‐ Share 33.8% 31.0% 30.2% 25.7%

Ratio Tech/Admin 2.0 2.2 2.3 2.9

Source: RSA

7 Tests delivered include test actually conducted (i.e. where there has been a pass/fail awarded) and also those where the tester has been available but the test has not

been able to proceed either because the candidate failed to show up or because the paper work for the candidate or the vehicle was not correct. The RSA receives a fee for

all of these “delivered” tests. Typically, the gap between tests conducted and tests delivered can be as high as 20%.


6

The reduction in headcount reflects a number of organisational and technological changes that have

been introduced by the RSA since 2007. The service has also seen a number of retirements in recent

years which have not been replaced due to the moratorium on public sector recruitment. In addition,

the computerisation of administrative functions and the introduction of on‐line booking have enabled

the RSA to reduce back‐office staff numbers and re‐deploy these people to other activities.8 On‐line

applications now account for 3 out of every 4 test applications and these bookings can now be input

directly into the system rather than being manually input by clerical officers.

The Driving Test Funding Gap

Unit costs have fallen significantly ‐ on a direct cost basis, unit costs fell to €68 in 2010 from €89 in

2007. While this is now significantly lower than the test fee, once indirect costs and the OPW cost of

test centre provision are factored in, the service is still facing a significant shortfall. In 2010, the unit

cost, including direct and indirect costs, was still running at €89 and once the cost of the provision of

driving test centres is factored in, the full unit cost was €99.

The RSA’s fee income has risen in recent years due to a substantial increase in fee rates in 2009 and

this is helping to bridge the shortfall in RSA funding. However, with a weighted average fee of less

than €78 per test in 2010, it is clear that, while the RSA’s driver testing service is covering its direct

costs, there is still some way to go to cover the indirect costs and the cost of estate provision.

The increase in fee rates which were introduced in January 2011 will clearly help to improve the

situation, but even using a weighted average of these higher fees (based on 2010 tests conducted by

vehicle category), the weighted average test fee would still be less than €88.

On the basis of the income and outgoings recast by the analyses undertaken by the consultants in

conjunction with the RSA, a significant funding gap still remains ‐ as shown in the following table.

Table 3: Estimated Driving Test Funding Gap

2007 2008 2009 2010

Application Fee Income € 11,363,576 14,124,838 9,313,979 11,730,121

Estimated Income – Tests

Delivered*

7,388,106 7,777,840 9,942,272 10,998,919

Full Costs (table 2) 19,679,029 21,139,819 16,272,175 14,338,922

Estimated Funding Gap ‐12,290,923 ‐13,361,979 ‐6,329,903 ‐3,340,003

Source: RSA

* the RSA’s fee income from test applications has been adjusted to reflect tests delivered by the RSA using the ratio of tests

delivered to applications in each year.

RSA has demonstrated the very real progress that has been achieved in the delivery of driver testing

in Ireland to date – both in terms of the quality of the service and also in terms of organisational

efficiency. However, it is also clear that once all the costs associated with the delivery of the service

are taken into account, the service still has a considerable way to go to become truly self‐financing.

8 The move to on‐line applications has also resulted in a 25% reduction in printing and postage costs.


7

The Croke Park Agreement

Of central importance in the context of future cost management is the status of RSA employees as

civil and public servants and the limitations that this places on both RSA management and the

Department of Transport.9

RSA staff are covered by the Public Sector Agreement 2010‐2014 (the Croke Park Agreement), as Non

Commercial State Sponsored Bodies. The Agreement contains a number of important provisions

which are relevant to the current study. In return for a freeze on public sector pay cuts and

protection from compulsory redundancies, public sector employees accept that efficiencies will need

to be maximised and productivity increased through revised work practices and other initiatives. In

addition, where positions become “surplus to requirements”, staff will be offered an opportunity to

re‐deploy to other areas of the public service – thereby ensuring a continued commitment to job

security within the Public Service.

This means, therefore, that in order to further rationalise the service, the RSA may reduce the

number of positions but any displaced staff will need to be redeployed to other positions within the

RSA or in the wider public sector. These staff will, however, remain on the payroll of the Exchequer

and therefore, “real” cost reductions must rely on natural wastage and negotiated efficiency‐

enhancing programmes.

A number of “Croke Park Projects” are currently the subject of negotiation with the Unions

representing driver testing administrative and technical staff. These include:

Driver Testing Technical Service Accreditations‐ ISO 9001 and 17024

Driver Testing Technical Staffing Accredited Training‐ HETAC Award

DTAS – Online booking management and use of technology on test routes

Driver Testing Quality Assurance and Supervision‐ Supervisors Restructuring

Maximising Driver Testing Productivity/customer service

A further project under the Croke Park Agreement that could impact on the operation of the driver

testing service into the future is that concerning the Multi‐skilling/Multi‐tasking of staff. It is

understood that the RSA is exploring with the Trade Unions the possibility of training key staff such as

Driver Testers, Transport Officers and ADI Examiners so that there could be greater cross functional

work and multi‐tasking. The RSA view this as a potentially useful mechanism to manage peaks and

troughs in enforcement, driver testing and ADI regulation.

The Outlook for RSA Costs

Whilst acknowledging the fact that the proposed Croke Park Projects are still the subject of on‐going

negotiations, the Consultants requested that the RSA attempt to forecast the direct and indirect costs

of the driver testing service over the period to 2015.

9 When the service was transferred from the Department to the RSA in 2006, driving testers were given assurance about the protection of their status as civil servants and

all the rights and entitlements that this bestows.


8

Table 4: Forecast Costs by Category ‐ including Current Estate Provision

2010 2011 2012 2013 2014 2015 % change 10‐15

Total Direct Costs 9,860,259 9,650,204 9,297,711 9,130,507 8,941,985 8,941,985 ‐9.3%

Indirect Costs 3,011,158 2,779,652 3,256,765 3,235,857 3,221,201 2,703,950 ‐10.2%

Total Direct/Indirect Costs 12,871,417 12,429,856 12,554,476 12,366,364 12,163,186 11,645,935 ‐9.5%

Current Centres Costs 1,467,505 1,467,505 1,467,505 1,467,505 1,467,505 1,467,505 0.0%

Full Cost 14,338,922 13,897,361 14,021,981 13,833,869 13,630,691 13,113,440 ‐8.5%

Source: RSA/OPW

The following table shows the change in unit costs over the period to 2015 – on the basis of direct,

direct and indirect, and full costs. In addition, the RSA has also provided its estimates of the potential

number of tests it expects to deliver over the forecast period.

As the table below illustrates, on this basis, the RSA is anticipating that the full unit cost of the

service will fall by 18% by 2015 to €81.3 per test, which would ensure that the service was covering

its costs. Indeed, on the basis of the RSA’s projections for costs, the service would effectively “break‐

even” with 160,000 tests delivered per year by 2012.

Table 5: Forecast Unit Costs 2010‐2015

2010 2011 2012 2013 2014 2015 % change

10‐15

Tests Delivered (RSA) 144,556 155,000 161,300 161,300 161,300 161,300 11.6%

Direct Unit Costs 68.21 62.26 57.64 56.61 55.44 55.44 ‐18.7%

Direct/Indirect Unit Cost 89.04 80.19 77.83 76.67 75.41 72.20 ‐18.9%

Full Unit Cost 99.19 89.66 86.93 85.76 84.51 81.30 ‐18.0%

The outlook for RSA costs going forward includes a number of cost cutting proposals which are

subject to agreement with the unions. However, other proposals aimed at making the service more

efficient are unlikely to result in overall cost saving as there will be no corresponding reduction in

staff numbers.

Forecast Demand

The decline in the unit costs expected by the RSA over the next five years is due not only to a decline

in the RSA’s overall cost base but also to an anticipated increase in the number of driving tests

delivered. According to the RSA, the number of tests delivered will increase from 144,556 in 2010 to

155,000 in 2011 and 161,300 in the period from 2012 to 2015. However, DKM have constructed a

bespoke population and economic model to test scenarios which are illustrated in the following chart.


9

Figure 2: Forecast Test Applications to 2021 ‐ DKM Model

This modelling exercise seems to suggest that it is only under the more optimist assumptions about

migration and population change that test applications10 will be maintained at current levels or

increase modestly in the longer term. Under all other assumptions, the model would predict a

decline in applications – and as indicated above, this could have a significant adverse effect on the

unit costs associated with driver testing, unless mechanisms were in place to enable the RSA to

respond quickly to changes in demand by re‐deploying staff and re‐directing resources away from

testing. This illustrates the potential “down‐side risk” facing the Authority in coming years.

It is clear that even under DKM’s High Estimate (i.e. low migration) demand scenario, unit costs will

be significantly higher than those projected by the RSA, and indeed, would still mean a significant

funding shortfall.

Such a situation would obviously pose serious demand management issues for the Authority. While

in the past the problem confronting the RSA was how to deal with excess demand, resulting in the

need to outsource significant numbers of tests, the problem in coming years could be around the

existence of excess capacity and the inability to reduce staffing levels and overhead costs in a timely

manner.

The RSA is already achieving its required waiting times – and whilst acknowledging that short‐term

bulges can always appear due to adverse weather conditions etc – there seems little value in

expending resources simply on continuing to drive down waiting times. It would appear, therefore,

that given the potential risks to the demand for tests in coming years, that the RSA’s efforts need to

focus not only continuing to enhance the efficiency of existing staff, but also on ways of introduction

greater flexibility in the use of technical and administrative staff. Projects such as the multi‐

10 It is important to again stress the difference between test applications and tests delivered. In general, tests delivered tends to be lower than applications because of

waiting times, cancellations etc.


10

skilling/multi‐tasking could be crucial in this regard. It is noted that the planned retirements and

redeployments will reduce tester numbers and assist in managing any downturn in demand.

Whilst acknowledging the progress that has been achieved by the RSA in cutting unit costs and

tackling the funding gap, these savings could be significantly undermined by a downturn in demand

for tests. Indeed, it would appear that demand could be the single biggest influencer over unit costs

and funding gap for the RSA going forward. DKM Economics’ range of forecasts, based on Ireland’s

changing demographics, points to the fact that the RSA could be facing a significant down‐side risk

which, given the lack of flexibility in staffing, could undermine the cost improvements that have been

achieved in recent years. This is something that the RSA needs to be conscious of and to factor into

its demand management strategy.

Potential Estate rationalisation The impact of potential rationalisation of the estate was considered by RSA in a previous exercise

undertaken Mazars/DKM11 and the draft findings suggested a number of centre closures and

investments in key locations. The full implications of such a programme of change are complex and

would require revisiting in view of the subsequent decline in demand forecasts since the original

study. However, the consultants and RSA have estimated the cost savings impact of the envisaged

programme, assuming rapid implementation, as €430,044 per annum. This would represent a cost

saving to RSA but, as explained in the earlier section, the underlying lease costs of most test centres

no longer required would continue to fall to OPW at a cost of €1,467,505 annually until the expiry of

individual leases.

Outsourcing to a Private Provider In line with guidance established under the Public Sector Agreement 2010‐2014 (‘Croke Park

Agreement’), where outsourcing might be an option in improving efficiency of service delivery, there

is a process for testing this proposition. This involves seeking cost comparisons from the private

sector and conducting an analysis alongside the public sector’s proposals for retaining services in‐

house. The twin track approach we have adopted is as follows:

(1) to further refine and verify the RSA’s projections for future self‐sufficiency and retention of

the DTS by implementing the various efficiency projects, some initiated under Croke Park, others ongoing; and

(2) to develop a generic but sufficiently indicative shadow bid cost to represent the comparative costs that might arise in an outsourced scenario.

The Consultants approached a number of operators who have international experience of providing

the type of services under consideration and three operators agreed to cooperate and provide certain

information in the context of a range of parameters and assumptions we provided to standardise

their responses.

Of course any information provided by operators would be recognised to be done under goodwill and

could not be held to be either indicative or binding in any possible future tendering process. It was

stressed the fact that any information provided would be used only to inform the research into the

appraisal of possible options for the delivery of driver testing and NOT as part of any potential future

tender process.

11 Review of Estate Requirements for Driver Testing Nationally – Mazars and DKM, Draft Report January 2010


11

In terms of information and format sought, for the purposes of this study, we were mainly interested

in the estimated costs backed by only outline technical proposals and confirmation that the resources

indicated and costed would be reasonably representative of a potential future tender proposal. We

were NOT seeking detailed technical proposals as such will not form part of our study and would be

unreasonable to expect of operators for this study. We did, however, set out some specific

requirements, to ensure conformity of approach from participating organisations’ responses.

Important Note: FPM Accountants and DKM have not performed, nor is it appropriate for this

appraisal that there be sufficient level of detail to perform, a due diligence or audit of the data

presented by the operators. We have relied upon the assurances and confirmations requested and

provided by the operators with regards to their approach and costs but these can only be robustly

tested through procurement.

Fee levels

The Operators proposed a range of charging mechanisms to the RSA under the different sensitivities

we had requested. Paramount in all responses was the ability to maintain the current end‐user test

fee. Any reduction of cost of the outsourced service as compared with current provision might be

regarded as available for investment by RSA on its other activities.

There was a range of response on the level of fee that would be charged to RSA per test conducted.

To protect the commercial nature of the responses received, we will not show individual cost data

nor attribute data to individual operators. Without disclosing the commercial figures provided by the

operators, at a high level we can confirm that all three operators envisaged delivering their service

within the level of the current public fee.

The issue of VAT is important in this analysis, in that the RSA is a public entity that cannot charge VAT

on its services nor reclaim VAT on services procured. Therefore, if RSA is charged a fee by an

operator for delivering testing services, this fee, including VAT must be less than the current test fee,

which does not include VAT. In other words, at the current test fee level of €85 equates to a

maximum fee chargeable by an Operator to RSA of €70.25 excluding VAT.

The range of fees proposed (either fee to be charged or fees net of levies/royalties to be returned)

was from approximately 20 to 30% lower than the net‐of‐VAT current fee equivalent, €70. In other

words the operators were able to propose a fee which, even after being grossed up for VAT is still

significantly lower than the RSA Fee of €85.

For the 150,000 volume level which was used as a realistic modelling assumption, the operator test

fees ranged from €54 to €63 net of VAT (which would be charged and non‐recoverable by RSA),

equating to €65.34 and €76.23 including VAT.

This in itself indicates significant cost efficiencies as against the RSA unit cost which does not carry

VAT and as shown in Chapter 4, the RSA’s calculated unit cost remains significantly higher than the

fee levels proposed by operators.

Impact of TUPE (Transfer of Undertakings (Protection of Employment))

We asked Operators to consider the costs assuming (a) that existing employees exercised their rights

under TUPE and transferred to the Operator, and (b) that no TUPE took place and that Operator

recruited its own workforce and RSA staff remained in the public sector.


12

This was clearly a significant factor in the modelling of costs for the Operators and it was apparent

that they generally were of the view that in a full TUPE transfer situation, there was considerably less

or indeed no benefit to the Operator.

Quality and Standards Overall, the three operators provided information which illustrated and supported their claims

regarding quality of service and standards enforced. In practice of course RSA would require to

monitor the contract either in‐house using the retained management structures or outsourced as per

NCTS. The level of IT information available now as compared with a number of years ago should

significantly mitigate the monitoring effort required and the NCTS provides a robust contract as a

template to refine.

In a broader context, concern was also expressed about the maintenance of driver testing quality

standards. It was pointed out that the RSA’s over‐riding focus is on saving lives, not cost efficiency. A

private operator, in contrast, while contractually obliged to maintain quality standards at a specified

level, will necessarily be motivated by commercial factors rather than safety. This, it was felt, could

potentially impose a high cost on society in terms of lives lost or lives damaged. The mitigation to

such concerns would be the strength of the contract and the adequacy of monitoring.

International Benchmarking In considering the option to out‐source the service to a private provider, the Consultants investigated

the range of service delivery models in other countries to determine if there were an examples where

the service had been outsourced to private operators; how successful the exercise was deemed to be,

and whether there were any particular learning points that could be drawn from their experience.

The findings of the international research are set out in Appendix 1. However, it is clear from this

research that state provision is still the most prevalent form of provision in the vast majority of

countries in Europe. While there are private companies active in the provision of services in Germany

and Belgium, in both cases, the service was delegated or endowed to these companies many years

ago and the service is not subject to a public tendering process.

It would appear that Finland is the only country that has a formal tendering process for its driver test

service. This dates back to 1999 when the service, which was previously provided by the State, was

outsourced on a regional basis to private operators. Finland is, however, an interesting test‐case

given the similarity of scale with Ireland.

The other example that proved to be of particular interest is that of Ontario in Canada. Again the

service was previously State provided but issues had arisen in relation of the length of waiting times

and overall customer service. Following an extensive examination of the options, it was decided that

the most cost‐effective option was to outsource the service to a private company in the form of a 10

year concession. Following a competitive tendering process, Serco was awarded the contract in 2003.

As part of the agreement, the Ontarian Ministry of Transportation Office received an up‐front

concession payment of CAN $114 million. Serco introduced a number of significant efficiencies and it

would appear that quality standards have been maintained while customer service levels have

improved considerably.


13

In a number of other jurisdictions, the private provision model is somewhat different. In Alberta,

Canada, for example, private agents are authorised to conduct driver tests and award licenses. In

New Zealand too, private agents play a central role in the driver test system.

Retained versus Outsourced Comparison For the purposes of this study and given the scale of the operation to be out‐sourced and the

likelihood of the existence of significant economies of scale, the most appropriate model would seem

to be the out‐sourcing of the complete service as one single lot and over a period that would enable a

private company to recover its initial investment.

The comparison of the RSA in‐house projections and the outsourced costs is set out below,

commencing with the RSA projected unit costs.

Outsourced test fee As indicated in Chapter 5, the “shadow‐costing” developed from the input of a number of potential

private operators suggests significant cost savings are possible in the delivery of the service. Indeed,

on a unit cost basis, private operators claim – on average – to be able to deliver the service for

approximately €71 (inclusive of VAT) per test. This compares with the RSA’s current estimated unit

cost of €99 per test (Tables 8 and 15) and its projections of unit cost of €81 by 2015 (Table 15), taking

account of a number of efficiencies under the Croke Park Agreement.

Another factor that is worth noting in relation to the out‐sourcing option, relates to the treatment of

risk. As indicated earlier, the RSA is potentially facing a significant down‐side risk if demand for tests

starts to decline in coming years. Clearly, if the service were out‐sourced to a private operator, that

risk would also be out‐sourced.

Exchequer level analysis

So, while on the face of its, there would appear to be a clear cost advantage to be had by out‐

sourcing the service to a private operator, there are a number of other important factors that also

need to be taken into account. And indeed, as part of the project’s Terms of Reference, the

Consultants were asked to focus not only on the most cost effective model for service delivery but

also to consider the wider impacts of each option, including impacts at Exchequer level. In this

context, the following factors also need to be included in any assessment of the options for the

delivery of the service;

1. VAT – as indicated previously, the RSA, as a public sector organisation, does not have to account

for VAT on the driving test fees it charges the public. In contrast, private operators would be

liable for VAT and this would have to be accommodated within the overall ceiling of the driving

test fee. This VAT element therefore forms a new source of revenue for the Exchequer. In terms

of comparing RSA unit costs against those of the Operators, it is therefore appropriate to use the

test fee net of VAT to recognise the Exchequer benefit of the VAT raised and submitted by an

operator raising the fee to RSA per test delivered.

2. RSA estates cost borne by OPW – it is the case that the majority of the current test centre estate

is funded directly by OPW and that the rationalisation of the estate may result in cost savings for


14

RSA. However, as indicated previously, the OPW will continue to bear these costs until the expiry

of the leases in question and therefore will form an ongoing cost for the Exchequer.

3. Driver Testing staff costs – in a scenario where an outsourced service is procured, and where the

staff do not elect to transfer across to the private operator but exercise their right to remain in

the public sector, then these staff costs remain a public sector expense and are relevant to the

comparison. While it may be possible to re‐deploy a number of these staff members to other RSA

activities or to other areas of the public service, the likelihood is that they will remain an ongoing

cost for the RSA or the Exchequer.

By means of illustration, the following table sets out the costs and revenues arising under both the

retained and the outsourced scenarios in 2015 based on RSA projections. The calculations are based

on 150,000 p.a. test volume and show clearly that the staff costs are the overriding factor in the

exchequer‐level cost comparison.

Table 6: 2015 Retained and Outsourced Comparison

Services Retained Services Outsourced

€ € € €

Fee income based upon 150,000 p.a., €88 weighted average fee

13,200,000 Fee income based upon 150,000 p.a., €88 weighted average fee

13,200,000

RSA unit cost 2015 inc OPW costs (€81.3, table 15, based on 161,300 tests), restated for 150,000 tests

87 Ave Outsourced Cost per test (inc VAT)

7112

Cost of 150,000 tests p.a.

13,050,000


10,650,000

RSA 'operating surplus' 150,000 RSA 'operating surplus' 2,550,000

Add: benefit of VAT on outsourced fees rendered to Exchequer

1,848,347

Surplus before adjustments for OPW and PSA

4,398,347

Less: OPW estate costs ‐1,467,505

RSA 'Surplus' after Exchequer adjustments, pre‐PSA

150,000

RSA 'Surplus' after Exchequer adjustments, pre‐PSA 2,930,842

Less: PSA Retained staff costs (direct and indirect, basic salary and employers PRSI)

‐7,713,384

RSA 'Surplus' after all exchequer adjustments

150,000 RSA 'deficit' after all exchequer adjustments

‐4,782,542

12 Note this reflects an average fee from the three operators, and some fees were lower than this


15

The table above illustrates that at the RSA unit cost level, the outsourced scenario at €10.65m could

potentially save in the region of €2.4m in 2015 compared with the RSA in‐house service at €13.05m.

The €2.55m surplus on Driver Testing Services under the outsourced scenarios is sufficient to cover

the cost of monitoring such a contract (for comparison the NCTS contract monitoring is in the region

of €1m per annum plus the internal administrative time of two people part‐time). The remainder of

such a surplus could also contribute towards other important activities of the RSA including road

safety.

In effect, at the RSA organisational level, the outsourced option provides significant savings which

would be increased further when taking account of the benefit to the Exchequer of VAT rendered, the

potential saving increases to approximately €4.4m within that one year.

However, in order to appreciate the wider Exchequer level impact of both options, we need to adjust

the outsourced option for the costs of the existing OPW leases which will continue in the medium to

long term and for staff costs of RSA retained under Croke Park.

The private operators have made their own assumptions regarding provision of estates within their

unit costs thus the OPW estates costs would be additional and surplus to requirements. It is possible

that in negotiation a number of sites might be taken on by an operator which would reduce this cost.

If all existing Driver Testing services staff either transferred off public sector payroll under TUPE to an

operator, or were found alternative employment in public sector, then the outsourcing option would

demonstrate clear savings otherwise the €7.7m cost of staff will have to continue to be borne and

therefore added back to the option costs. Following adjustment for the OPW estate costs and

retained staff costs, the €4.4m surplus becomes a €4.8m deficit arising from these adjustments.

The same exercise is conducted in the table below for the next 5 years using RSA’s unit costs and

recalculating these on the basis of a volume of 150,000 tests the same as the operators have

modelled and more akin to the DKM projections.

Table 7: 2011‐2015 Retained and Outsourced Comparison

2011 2012 2013 2014 2015

Retained

RSA Forecast Volume 155,000 161,300 161,300 161,300 161,300

Direct/Indirect Unit cost (Table 15) 80 78 77 75 72

Estates OPW cost (1,467,505) 9 9 9 9 9

Full unit cost (Table 15) 89 87 86 84 81

Total cost 13,902,856 14,027,476 13,839,364 13,636,186 13,118,935

Unit cost at 150,000 pa 93 94 92 91 87

Weighted average fee 88 88 88 88 88

RSA fee income @ 150k tests 13,200,000 13,200,000 13,200,000 13,200,000 13,200,000

(Deficit)/surplus on Driver Testing (702,856 ) ( 827,476 ) (639,364 ) (436,186 ) 81,065


16

Outsourced 2011 2012 2013 2014 2015

Ave fee inc VAT 71 71 71 71 71

Fee cost raised to RSA 10,650,000 10,650,000 10,650,000 10,650,000 10,650,000

less VAT raised ‐1,848,347 ‐1,848,347 ‐1,848,347 ‐1,848,347 ‐1,848,347

Net cost of outsourced tests 8,801,653 8,801,653 8,801,653 8,801,653 8,801,653

Weighted average RSA fee income @ 150k tests

13,200,000 13,200,000 13,200,000 13,200,000 13,200,000

Outsourced surplus before OPW and PSA adjs

4,398,347 4,398,347 4,398,347 4,398,347 4,398,347

Less: Estates cost 1,467,505 1,467,505 1,467,505 1,467,505 1,467,505

Outsourced surplus after OPW before PSA adj

2,930,842 2,930,842 2,930,842 2,930,842 2,930,842

Less: retained staff 8,348,892 8,019,864 7,878,214 7,716,492 7,713,374

Exchequer adjusted cost of outsourcing

‐5,418,050 ‐5,089,022 ‐4,947,372 ‐4,785,650 ‐4,782,532

The table above sets out the annual surplus on the delivery of driving tests under an outsourced

contract is of the order of €4.4m per annum before adjustment for OPW estates costs and the

impact of Croke Park on retained staffing costs.

Whilst in terms of accounting at the RSA level there are clear savings to be made and a surplus to be

generated, arising from both the OPW estates and PSA staffing issues, the Exchequer will be worse off

under an outsourcing proposal at least until such time as OPW leases expire and Driving Test staff

retire or leave the service, or can be meaningfully redeployed to other activities.

On the basis of the cost evidence analysed by the consultants and supported by RSA, there is a clear

track record of cost reduction from inception to the present day. There does appear however to be a

limit to the further efficiency and cost reduction that will be achievable within the next few years

without more radical measures and indeed by 2015, the unit cost will continue to be undercut

significantly by private operator estimates.

It is also important to note that the comparison modelled an average operator fee, not the lowest fee

that was proposed, so potentially in procurement further savings might be driven out in competition.

Conclusions and Next steps

Whilst acknowledging the improvements achieved by RSA in recent years, there seems to be a case

for exploring further the potential of private operators to provide the Driver Testing service given the

ongoing funding gap and level of unit cost within RSA. The NCTS and Theory Testing Contracts have

been well managed by RSA and are operated satisfactorily in terms of public service, safety and cost.

Additionally, given that the operators have given their information at this stage without detailed bid

development, but out of goodwill and enthusiasm for the potential opportunity for business, it would

be prudent to test their assumptions and costings through a rigorous procurement exercise.

The comparative analysis highlighted the significant cost benefit to RSA of an outsourced contract

which could deliver an operating surplus for the organisation to cross‐subsidise its other statutory

activities.


17

However it was equally clear that the implementation of the safeguards under the Croke Park

Agreement negated this surplus and highlighted that outsourcing would come at a cost to the

Exchequer unless alternative employment or natural wastage absorbed the existing workforce

delivering Driver Testing Services.

The Department of Transport needs now to consider the merits of undertaking a procurement

exercise to evaluate outsourced Driver Testing services whilst having limited scope for cost reduction

on staff costs given the Croke Park Agreement without which the case for change would be more

easily substantiated.

As an immediate step, RSA should further examine its internal costs for greater savings from

delivering the services, seeking to close the funding gap which is also particularly sensitive to the

demand forecasts which appear optimistic based on DKM projections.

The RSA wishes to use the funding being spent by OPW to operate a meaningful SLA with OPW and to

also exploit synergies with other contracts such as NCT and Driver Theory Test Centres where

appropriate.

As a medium term proposal, RSA should consider the rationalisation of the estate in reducing the

number of test centres and particularly in the context of, at best stable and quite possibly, reduced

demand levels in the short to medium term. This should be considered as an urgent priority and will

require close liaison with OPW regarding the prioritisation of sites for closure along with the

requirement for re‐provision of some site which have been identified as unsuitable in terms of

location of logistics to conduct modern test.

RSA has demonstrated significant progress from its inception in terms of service, quality and

customer care and now needs to demonstrate that these can be maintained at an economic cost and

preferably as a surplus generating activity to fund other important statutory obligations.


18

2. Introduction

Background

In 2009 the Department of Finance published the Report of the Special Group on Public Service

Numbers and Expenditure Programmes, which included a number of recommendations in relation to

the organisation and funding of the Road Safety Authority (RSA).

Specifically, the Group noted that the allocation for the RSA was boosted in 2008 to deal with a large

backlog in driver test applications and also to provide a more intensive public information campaign

on road safety.

“With the backlog largely dealt with, it is reasonable that the allocation for the RSA return to

2007 levels, allowing for the application of appropriate inflators. On this basis, a reduction of

€4.2m is recommended. This would still maintain a high level of expenditure on road safety by

historical standards.”

While the Group also acknowledged the fact that the increased test fee agreed by the Minister for

Transport should offset some of the impact of the proposed €4.2m reduction, it went on to strongly

recommend that:

“at a minimum, the RSA's driver testing and instructor testing/registration activities be run

on a full cost‐recovery basis and that in the longer term, the possibility of making the RSA

entirely self‐funded should be pursued.”

Further changes recommended by the Group included the merging of the National Vehicle Driver File

(NVDF) into the RSA. It was felt that this would make good operational sense as it brings under the

same management control responsibility for testing and licensing drivers and vehicles. It was noted

that the merger should serve to make achieving actual staff/operational efficiencies from the

amalgamation of support and other services realistic.

However, the Group also went on to express the view that the processes involved in delivering the

work programmes of the NVDF and the driver testing section of the RSA are suitable for outsourcing.

It pointed to the fact that a proportion of driving tests had already been outsourced during initiatives

to reduce the driver testing waiting list and suggested that “outsourcing should now be extended to

apply to all driving tests”.13

Project Terms of Reference

In response to these recommendations, the Department of Transport commissioned the consultants

to undertake an option appraisal to assist in determining whether the driver testing service should

13 http://www.finance.gov.ie/viewdoc.asp?DocID=5906&CatID=45&StartDate=01+January+2009&m=), page 216


19

continue to be directly delivered by the RSA, should be outsourced by the RSA to a service delivery

partner, or whether some combination of the two models is appropriate or practicable14.

Specifically, it was stipulated that the study should include:

a. The preparation of a comprehensive Report setting out an option appraisal of the future

delivery of the driver testing service in Ireland, having regard for which option provides the

most efficient, cost‐effective service delivery option.

b. Consideration, in the context of the option of the continuation of service delivery by the

RSA, of possible alternative models of service delivery within the RSA in order to improve

efficiency and cost effectiveness of service delivery.

c. Consideration of:

Financial implications for the Exchequer, the RSA and the services customer;

Implications for public service employment numbers;

Accountability, audit, quality assurance and oversight implications of any

recommendations;

Proposals of the RSA’s review of driver testing facilities completed in early 2010, which

recommended a reduction and reconfiguration of the driver testing centre network;

and

Proposals to change testing requirements in the medium term.

It was also stipulated that in undertaking this work all relevant stakeholders should be consulted and

their views sought so as to get a range of perspectives on options being evaluated.

Approach and Methodology

There were a number of key stages involved in the methodology used in identifying and assessing the

options available to the Department in relation to the delivery of driver testing. These are set out in

the following flowchart.

Essentially, the first major element involved understanding the current organisation of driver testing

in Ireland – how the system has evolved and developed in recent years. This involved a review of

previous studies and reports on the service; an analysis of information provided by the RSA’s on test

delivery, on staffing levels and organisational structures and also on costs for each of the key areas of

its driver testing activities. These findings are summarised in Chapter 3.

It was also felt to be extremely important during this phase to try to capture the series of efficiency

improvements that have been implemented by the RSA since 2007 to ensure that its efforts to close

the funding gap are fully acknowledged.

14 It should also be pointed out that whilst outside the scope of this study, some union representatives also queried why the option of re‐integrating the service back into

the Department had not been included. They felt that this would also achieve efficiencies by eliminating the duplication of management functions (and costs) between the

Department, the RSA and potentially any private provider.


20

Having established the current position regarding the delivery of driver testing in Ireland and the

scale of the funding gap to be bridged, Chapter 4 involved a consideration of how the service may

change in coming years, if further planned efficiencies under the Croke Park Agreement are

implemented. In addition, the analysis also focuses on potential changes in demand over the forecast

period and how this might impact on the RSA’s cost profile over the period.

Chapter 5 examines the potential cost of the service if delivery of the driver testing service were out‐

sourced to a private operator. As part of this examination, the consultants investigated service

delivery models in other EU countries and in a number of countries world‐wide. The results of this

research are summarised in Chapter 5 but set out in more detail in Appendix 1.


21

While it is clear that the public provision is by far the most prevalent form of service delivery, there

are a number of interesting alternative models that appear to be working effectively and delivering

value for money.

While this provides an interesting back‐drop to the appraisals of options for Ireland, the critical input

into Chapter 5 was derived from a survey of three private companies who agreed to provide

information on the likely costs associated with the delivery of the service. This was vital in enabling

the consultants to develop a shadow model to check the possible cost‐savings associated with private

provision.

Having established the current cost structure of the RSA and what might be achieved as a result of

efficiency projects under the Croke Park Agreement, and having examined the possible costs

associated with delivery by a private operator, the next – and central – phase of the study involved

the detailed appraisal of these options.

This is set out in Chapter 6 and focused not only at a micro or organisational level but also examined

the implication of each option for the Exchequer as a whole. In this context, it was important to

ensure that any possible constraints – including regulatory constraints, legal constraints or constraints

imposed by initiatives such as the Croke Park Agreement – were identified and taken into account in

the analysis.

Stakeholder consultation played an important role in all stages of the review process and in verifying

our understanding and interpretation of data provided. The RSA’s management and staff were very

helpful in providing information and statistics on various aspects of the driver testing service. In

addition, the four Unions representing all grades of staff were consulted and were also very

forthcoming with views and opinions on the possible options open to the Department in relation to

driver testing.

As indicated above, the consultants also engaged with a number of private operators to elicit

information for a “shadow‐pricing” model and also to test the market capability, and appetite, to

tender for such contract. In addition, the consultants also engaged with a number of organisations in

other Member States to understand how different models of driver testing operate. This included

private operators involved in the provision of driver testing as well as the state agencies responsible

for oversight. Again, this was useful in informing the analysis of the factors that are likely to be

critical to the success of any possible future out‐sourcing arrangements and also to highlighting other

areas where efficiencies might be achieved.


22

3. Driver Testing in Ireland – RSA Progress to Date

Introduction

Driver testing plays an important role in ensuring that driver competency is maintained at a high

standard and this in turn is central to efforts to reduce the number and severity of accidents on Irish

roads.

The driver testing system has undergone several major changes in recent years and has been the

subject of a number of reviews. The service was delivered within the civil service by the Department

of Environment, Heritage and Local Government until 2002 when responsibility transferred to the

Department of Transport. In 2006, the RSA was created under the Road Safety Authority Act (2006)

and took over responsibility for the delivery of the service15, with the Department of Transport

retaining responsibility for oversight of the service.

Since the creation of the RSA significant improvements have been achieved both in terms of road

safety and also in relation to the delivery of driver testing and it is important in assessing the options

for the future delivery of the service, that these improvements are recognised and acknowledged.

Addressing Service Delivery Issues

When the service was transferred to the Road Safety Authority, it was transferred with a significant

backlog of applicants and very long waiting times for candidates. According to figures cited in the

C&AG report, by 2006 when the RSA came into existence, the numbers on the waiting list had

reached approximately 140,000 and the average waiting time for those tested was close to 30 weeks.

It is understood that the Department of Environment, Heritage and Local Government and the

Department of Transport had sought to address the growing backlog by recruiting additional staff and

providing incentives to facilitate the delivery of additional tests. However, despite these efforts

waiting times remained high. It is also understood that earlier efforts to use a private sector

contractor to assist in clearing the waiting list had failed and did not become a realistic option until

the Towards 2016 Social Partnership Agreement16 which provided for outsourcing to deal with

upsurges in demand.

Following this Agreement, an outsourced partner, SGS, was engaged by the Department of Transport

in July 2006 and when the RSA was created, it also took over management of this contract. That

contract provided (of necessity) for significant RSA involvement in the delivery of the service including

dealing with complaints and providing elements of IT and customer query backup. At the same time,

the Minister for Transport also set an ambitious target for the RSA to reduce the national average

waiting time to ten weeks by June 2008.

15 The Bill to create a Driver Testing and Standards Authority was first published in 2005 but as the Bill progressed through the Oireachtas it was re‐titled the Road Safety

Authority Bill and additional service delivery functions were added to the new Authority. This included functions previously undertaken by the Roads Authority (NRA) and

the National Safety Council (NSC). In addition to driver testing and training, under the Act, the RSA is also responsible for vehicle standards and certain enforcement

functions, road safety promotion, driver education and road safety research. 16 http://www.taoiseach.gov.ie/attached_files/Pdf%20files/Towards2016PartnershipAgreement.pdf


23

As a result, this necessitated a significant scaling up of capacity and in consequence, the RSA conducted a public procurement process and awarded a contract for a second period to SGS in June 2007.17 (SGS delivered 6,260 tests in 2006, 50,944 in 2007 and 220,752 tests in 2008)18. In addition to the very significant test backlog that the RSA inherited, the change in policy in relation to

provisional licenses in 2007 resulted in a further sharp spike in test applications.

Historically, the practice of allowing learner drivers to drive unaccompanied whilst holding a

provisional license, had weakened the incentive to actually apply for, and sit, a test19. At the same

time, however, it also acted as a safety‐valve to help to compensate for the fact that waiting times for

those actually seeking to take a test were relatively long.

This practice was, however, in breach of the EU Directive and from October 2007, the RSA ceased to

issue provisional licenses. In addition, with effect from 30th June 2008 holders of second learner

permits (provisional licences) were no longer permitted to drive unaccompanied.

As a consequence of these changes, demand for tests (which had already been rising as a result of

demographic and economic factors) increased dramatically. The test system became completely

overloaded and this meant that a substantial increase in the “supply” of tests was required to meet

the unprecedented level of demand.

The following table and chart illustrates the growth in demand for tests over the period from 1991 to

2010.

Figures for both test applications and the number of tests conducted are shown (the figures can vary

significantly due to the lag between a test application and when the test is actually conducted and

also because of cancellations, no‐shows etc).

17 C&AG special report and RSA response 18 Source: RSA End of Year Reports 19 The RSA noted in its response to the C&AG report that as a result of the “long‐term institutionalised reliance on provisional licensing” almost half a million motorists

were driving on provisional licenses and this resulted in a lack of incentive to actually take a driving test. It also led to a large number of last minute cancellations,

candidates failing to show and tests being abandoned due to issues such as out‐of‐date licences, unroadworthy vehicles, un‐taxed or un‐insured vehicles. (RSA response,

page 8)


24

Table 8: Demand and Supply of Driving Tests

Test Applications Tests Conducted

1991 92,473 113,764, 1992 106,518 97,232 1993 94,385 96,598 1994 109,759 89,383 1995 107,840 93,443 1996 129,053 103,512 1997 118,144 103,367 1998 146,506 100,112 1999 153,389 138,176 2000 166,908 162,696 2001 181,370 172,376 2002 192,016 148,983 2003 233,889 156,415 2004 177,667 153,983 2005 178,531 137,500 2006 216,818 171,269 2007 276,561 197,866 2008 362,163 388,366 2009 144,670 125,823 2010 154,166 116,814

Source: RSA/C&AG

The chart serves to highlight the widening gap between applications and tests conducted in the mid

to late 1990s and early 2000s as “supply” failed to keep pace with demand. It also highlights the

very sharp spike in applications in 2007 and 2008 due to the change in the regulations regarding

provisional licenses.

Figure 3: Demand and Supply of Driving Tests

Source: RSA

The Comptroller and Auditor General Special Report into Driver Testing20 (the C&AG Report)

acknowledged the significant improvements that have been achieved since the driver testing service

has been under the control of the RSA.

20 Comptroller and Auditor General Special Report, Department of Transport, Driver Testing in the Road Safety Authority, November 2009.


25

The report notes that,

“The timeliness of the provision of tests has radically improved. Although applications for

driving tests doubled between 2005 and 2008, the RSA succeeded in dealing with the surge in

applications as well as the historical backlogs.

It increased the number of tests delivered through conducting a greater proportion of tests on

overtime and by using an external contractor to deliver a large number of tests. By the end of

2008, the numbers on the waiting list and consequential waiting times had decreased

significantly. By the end of 2008, average waiting time had fallen to 8.6 weeks and the longest

a candidate had been waiting was eleven weeks at that time”.

More recent figures confirm that the RSA is continuing to achieve its target for waiting times and as a

result, the average waiting time for a test at the end of 2010 was less than 10 weeks.

Addressing the Cost of Driver Testing Provision

The last number of years has been a period of major change in the delivery of driver testing services.

The RSA has clearly made significant progress in addressing the past imbalance between the demand

for, and supply of, driving tests in Ireland. The backlog has been eliminated and government targets

for waiting times are now being achieved. It has also brought the test system into line with European

norms though the introduction of a number of important measures aimed at raising the driving test

standard and further improvements are planned under the Graduated Driver License Scheme.

Other measures introduced by the RSA include the publication of written standard procedures for

conducting driving tests and published driving fault marking guidelines; the introducing a system for

the accreditation of Driving Instructors (who must all now hold a FETAC Level 6 qualification); a

revision and extension of the driver theory test as well as re‐writing the Rules of the Road.

However, now that many of the long‐standing quality and customer service issues have been

addressed, the RSA has been able to start to focus its attention more on the cost‐effectiveness of the

service and has started to implement organisational changes designed to bridge the funding gap

which has historically existed in relation to driver testing.

The following Table 2 summarises some of the key financial indicators for the RSA’s driver testing

service from 2007 to 2010. This shows the direct and indirect costs associated with the provision of

driver testing as provided by the RSA.

In addition, estimates from the OPW on the annual cost of the provision of the RSA’s test centres are

also included. The RSA does not typically account for these as it does not bear these costs directly.

However, to arrive at an estimate of the full cost of driver testing, it is important that these costs are

also taken into account – as although they are not borne by the RSA, they are a cost to the State.

These figures are then used to derive unit costs which are based on the number of tests delivered21

by the RSA over the same period.

21 Tests delivered include test actually conducted (i.e. where there has been a pass/fail awarded) and also those where the tester has been available but the test has not

been able to proceed either because the candidate failed to show up or because the paper work for the candidate or the vehicle was not correct. The RSA receives a fee for

all of these “delivered” tests. Typically, the gap between tests conducted and tests delivered can be as high as 20%.


26

Before examining these figures, it is important to acknowledge the improvements that have been

achieved by the RSA in recent years – against a very volatile and changing backdrop. It is also

important when considering the cost information presented below that the RSA is only now

beginning to achieve something close to a “steady state” situation. Each of 2007, 2008 and 2009

were exceptional years and 2010 is the first year RSA might consider as ‘typical’ going forward.

Table 9: RSA ‐ Summary of Key Financial Indicators

2007

€

2008

€

2009

€

2010

€

% change 07‐

10

Direct Costs 16,011,481 16,638,892 11,472,023 9,860,259 ‐38.4% Indirect Costs 2,200,043 3,033,422 3,332,647 3,011,158 36.9% Direct & Indirect Costs 18,211,524 19,672,314 14,804,670 12,871,417 ‐29.3% Estate Costs (OPW)22 1,467,505 1,467,505 1,467,505 1,467,505 0.0% Full Costs 19,679,029 21,139,819 16,272,175 14,338,922 ‐27.1% Tests Delivered* 179,818 199,425 154,429 144,556 ‐19.6% Direct Unit Costs 89.04 83.43 74.29 68.21 ‐23.4% Direct/Indirect Unit Cost 101.28 98.65 95.87 89.04 ‐12.1% Full Unit Cost 109.44 106.00 105.37 99.19 ‐9.4%

Note: Source RSA

* Tests delivered includes tests actually conducted and also those where the candidate has failed to show up for the test or

where the test has not been able to proceed because of the condition of the vehicle or because of problems with paperwork

e.g. lack of insurance etc.

As the figures illustrate, the direct costs of delivering the service, which are predominantly related to

staff and staff‐related costs, are by far the most significant element of overall costs, accounting for

almost 70% of total costs in 2010. These have, however, fallen by over 38% since 2007.

In contrast, indirect costs, which relate to the allocation of central corporate service costs to driver

testing, increased by approx 36% over the same period but have reduced somewhat from 2009 to

2010.

Despite this, the total cost of the service, even including the OPW estimates for the cost of driver test

centres, has fallen by over 27% over the period.

Direct Costs

As indicated above, direct costs are the most significant element of the cost of the provision of driver

testing but these have declined significantly in recent years.

22 OPW provided figure for cost to OPW of RSA premises


27

The following table provides a breakdown of these costs by broad category.

Table 10: Direct Costs by Category

TOTAL TOTAL TOTAL TOTAL

€ € € € % change

2007 2008 2009 2010 07‐10

Basic Salary 10,178,854 9,195,569 8,612,763 7,635,955 ‐25.0%Employers PRSI 717,873 829,816 577,934 512,666 ‐28.6%Salary and PRSI 10,896,727 10,025,385 9,190,697 8,148,621 ‐25.2% Overtime Standard 579,918 950,993 296,059 144,459 ‐75.1%Overtime ‐ Driver Testers

1,416,742 1,560,631 394,404 399,793 ‐71.8%

Overtime 1,996,660 2,511,624 690,463 544,252 ‐72.7% Travel ‐ Domestic 915,209 336,197 264,234 198,163 ‐78.3%Travel ‐ Foreign 247 1,597 92 2,176 781.0%Car Allowance 345,660 269,727 234,895 Subsistence ‐ Foreign 1,676 1,399 267 1,812 8.1%Subsistence ‐ Domestic 1,670,607 2,468,680 756,727 531,790 ‐68.2%Travel and Subsistence 2,587,739 3,153,533 1,291,047 968,836 ‐62.6% Total Staff Related Costs 15,481,126 15,690,544 11,172,208 9,661,709 ‐37.6%Other* 530,355 948,349 299,815 198,550 ‐62.6% Total Direct Costs 16,011,481 16,638,893 11,472,023 9,860,259 ‐38.4%

Source: RSA

* Other Costs relate to driver testing support costs, technical advice and compensation for cancelled tests.

Staff costs are by far the largest component, with salary and PRSI costs accounting for 68% of total

direct costs in 2007 and over 82% in 2010. RSA account for the high level of PRSI in 2008 arising from

a bonus scheme related to overtime working to clear the backlog. However, these costs have fallen by

over 25% in the last four years, reflecting the reduction in headcount over the period (24.1% see

Table 4) as well as the cut in public sector pay.

With specific reference to subsistence, RSA has reviewed the Domestic subsistence in this period and

regards it as reasonable taking into account the number of staff in the Directorate over the period. All

domestic subsistence was claimed in accordance with the Department of Finance T&S rates over this

period. The only year that was high was 2008 and again this was to address the driver testing backlog.

In recent years, the elimination of the backlog of tests and changes to work practices which were

agreed with the Unions have helped to reduce spending on over‐time and travel and subsistence

costs.


28

These changes include the arrangements for the headquartering of staff and changes to staff

rotations including the reduction in “long‐outs” and “short‐outs”.23 As a result, overtime costs have

fallen by almost 73% and travel and subsistence costs by almost 63% over the four year period.

The reduction in the very high levels of overtime and allowable subsistence in 2007 and 2008

accounts for the balance in the reduction of overall direct costs by 38.4% over the period.

Table 11: RSA Driver Testing Staff by Grade (Full Time Equivalents)

2007 2008 2009 2010 % change 07/10

Chief Tester 1 1 1 1 0.0%

DT Supervisors 11 10 10 10 ‐9.1%

Driver Testers 133 127 116 112.5 ‐15.5%

Principal Officer 1 1 1 1 0.0%

Assistant Principal 1 1 1 1 0.0%

HEO 1 1 1 1 0.0%

EO 8 8 8 5 ‐37.5%

Clerical Officers 63 51 44 34.7 ‐44.9%

Total 219 200 182 166.1 ‐24.1%

Technical – No. 145 138 127 123.5 ‐14.9%

Admin – No. 74 62 55 42.7 ‐42.3%

Technical ‐ Share 66.2% 69.0% 69.8% 74.3%

Admin ‐ Share 33.8% 31.0% 30.2% 25.7%

Ratio Tech/Admin 2.0 2.2 2.3 2.9

Source: RSA

Table 4 shows the breakdown of driver testing staff by grade. The number of full time equivalent staff

has fallen by 24% over the period. Within the total, the number of technical staff has fallen by 15%

and clerical staff by over 40%. This has also helped to reduce the ratio of administrative staff to

technical staff from 1 for every 2 technical staff to 1 for every 3 technical staff by 2010.

The reduction in headcount reflects a number of organisational and technological changes that have

been introduced by the RSA since 2007. The service has also seen a number of retirements in recent

years which have not been replaced due to the moratorium on public sector recruitment. In addition,

the computerisation of administrative functions and the introduction of on‐line booking have enabled

the RSA to reduce back‐office staff numbers and re‐deploy these people to other activities.24 On‐line

applications now account for 3 out of every 4 test applications and these bookings can now be input

directly into the system rather than being manually input by clerical officers.

23 These refer to the requirement for driving testers to travel from their headquarters to other test centres to undertake tests – the payment varies depending on the

length of time that the tester is away from his/her home base. 24 The move to on‐line applications has also resulted in a 25% reduction in printing and postage costs.


29

The introduction of an updated IT system has been a key efficiency‐driver for the RSA. It is

understood that when the service was taken over by the RSA that “the driver testing IT system was

unreliable, prone to disruption and provided little by way of management reporting and monitoring

capability”25. The RSA identified the need for a more appropriate IT system to manage the service.

Following an EU tendering process, FUJITSU were awarded the contract and the new system is being

introduced on a phased basis.

The first phase of the new Driver Testing Application System (DTAS) has already been introduced.

This enables learner drivers to make their application and pay for their test on‐line. This has been

extremely successful with close to 75% of applications now being completed on‐line. Further

efficiencies are anticipated with planned enhancements to DTAS and the implementation of Phase 2

of the new system. These are discussed in more detail in Chapter 4.

Indirect Costs

While direct costs have fallen significantly since the service was taken over by the RSA, indirect costs

have been rising sharply. These costs relate to central staff and overhead costs which are allocated to

the driver testing service. They therefore include an apportionment of costs for corporate service,

such as IT, finance, HR, Estates etc, based on an assessment of the amount of time that individuals

within these departments spend on driver testing activities.

As shown in the following table, salary and PRSI costs have accounted for approximately 22 to 23% of

total indirect costs in recent years and these have increased by 8% over the four year period.

Table 12: Indirect Cost Allocation by Broad Category

2007 2008 2009 2010 % change07‐10

Salary and PRSI Costs 636,896 672,943 775,960 688,110 8.0%Overtime 25,109 57,296 35,062 43,881 74.8%Travel and Subsistence 63,905 66,339 33,553 38,962 ‐39.0%Training/Other 36,629 110,636 65,030 4,174 ‐88.6%Consultancy/Advice 177,767 277,197 101.411 82,773 ‐53.4%Administration (table 6) 1,138,803 1,661,388 2,090,553 1,943,065 70.6%Program Exp/Depreciation 120,934 187,623 231,078 210,191 73.8% Total 2,200,043 3,033,422 3,231,337 3,011,156 36.9%

Source: RSA

By far the most significant source of indirect costs, however, is the allocation to cover Administrative

costs such as printing and postage costs, technical advice, insurances, computer equipment and

support, telecommunications, energy costs, premises maintenance as well as depreciation on

buildings, equipment and vehicles. These costs have increased by approximately 70% over the period

and as result, in 2009 and 2010, these administrative costs accounted for almost 65% of total indirect

costs. Overtime costs peaked in 2008 reflecting the backlog elimination period but remain

reasonably high and indeed rose again in 2010.

25 RSA response to the C&AG report.


30

The following Table 6 shows the breakdown of the administrative costs which have been allocated by

the RSA to Driver Testing. Of particular note are the increases in the costs of office supplies and

stationery; postage and printing costs; telecoms and energy costs as well as facilities management

and repair and maintenance costs. In addition, there has been a very significant increase in the costs

associated with the implementation of the DTAS system and other IT related expenditure.

Table 13: Administrative Overheads by Category

Cost Category 2007 2008 2009 2010

Bank/Credit Card Charges 8,166 94,918 69,727 88,717Insurance ‐ Property 1,190 1,904 2,818

Insurance ‐ Professional Indemnity 1,456 627 595

Insurance ‐ Directors/Officers/Practices 4,343 1,769 1,316

Insurance ‐ Motor 1,019 2,106 2,026

Conferences 8,628 15,020 15,389

Meetings 3,262 8,114 167 1,605

Hospitality 4,604

Computer Consumables 4,869 8,811 11,528 9,270

Office Equipment Maintenance 429 10,168 6,729 7,982

Office Supplies & Stationary 36,498 118,862 59,720 100,326

Waste Disposal 19,155 117

Postal Services 484,529 78,840 267,213 206,934

Couriers 2,021 1,401 2,547

Printing Expenses 77,779 5,802 32,828 57,304

Audit Fees 9,878 47,024 46,822 27,671

Payroll Administration 37,183 34,626 35,236 32,219

Telecommunications Maintenance 16,894 44,505 113,434 54,195

Accommodation Hire 1,006 56,662 62,371 19,617

Building Security Costs 3,155 94,732 1,272 7,357

Furniture & Fittings ‐ Consumables 2,055 18,475 24,124 33,375

Facilities Management 22,293 136,564 224,093 184,529

Rates 18,746 25,974 23,760

Rent for Buildings/Test Centres 17,741 103,296 55,227 70,450

Buildings Repairs & Maintenance 490 84,591 198,907 171,861

Energy Costs 28,370 103,429 114,990 105,464

Premises Maintenance 13,323 24,467 218

Fleet Management 1,154 11,339 16,471

Mobile Phone Costs 20,849 28,059 14,768 14,784

Telephone Land Line Call Costs and Rental Costs 59,457 213,237 223,495 115,032

Credit Card Remittance Costs 97,439 28,705 18,415 11,019

Driver Testing Application Support 87,042 200,213 324,039 321,245

Hardware & Server Support 18,526 13,987 27,109 96,294

Software Licenses & Maintenance 70,259 31,734 70,592 102,018

Website Hosting Fees 8,684 2,862 27,122 54,045

1,138,804 1,661,391 2,090,554 1,943,064

Source: RSA


31

All Office supplies and stationary are now centrally managed in Corporate Services and RSA regards

the figure of €100k in 2010 as steady state now. The one year again that was exceptional in respect of

this cost was 2008 at € 119k but this was due to the amount of paper needed to send notices relating

to the Driver Testing backlog.

Despite the increase in internet based applications, the majority of persons applying in this manner

select the option for postal communication of notice. As such, the postal cost will remain at this level

and it is incurred in relation to franking credit and pre‐paid envelopes.

Furniture and fittings consumables include equipment that is consumable in nature and too small in

value to capitalise, relating to kitchen, cleaning equipment and ad hoc purchases.

Significant savings in landline phone costs were achieved by renegotiating contracts.

While these costs are deemed to be “indirect” by the RSA as they are based on a central allocation

from Corporate Services, they are clearly directly related to the provision of the driver testing service

and therefore, would have to be provided directly if the service was a stand‐alone enterprise.

Other Costs ‐ The RSA’s Estate

As noted above, the RSA does not account for the full cost of the provision of its estate of driving test

centres as, in the majority of instances, it does not pay for these directly. The Office of Public Works

(OPW) has historically sourced and carried the cost of providing test centre locations. Whilst this

relationship has relieved the RSA of the administrative burden of procuring the majority of the estate,

it has equally given rise to some level of frustration regarding the timeliness and, to a degree,

suitability of the premises so provided.

The critical advantage from RSA’s perspective of the OPW arrangement is that In terms of cost, the

current arrangement allows RSA to largely disregard the costs of provision in the calculation of the

unit cost as set out above. The only direct costs carried by RSA in relation to estates is several local

arrangements with hotels and private landlords for short term leases of premises at an annual cost of

approx €70,450 in 2010 and continuing at that level for the foreseeable future.

Exchequer costs of Estate

The leases paid for by the OPW are on a variety of durations and expiry dates as reflects their

historical acquisition. The ability of OPW to terminate any of these leases early is hampered by

current deflated market conditions and it is OPW’s view that it is unlikely landlords would be willing

to agree to early termination without significant penalty. Equally OPW foresee no other public sector

body having requirements for these leases if they were no longer required.

RSA relies upon the OPW for support in providing the sites in use and has no role in determining or

negotiating costs of leases. Any review of site retention or replacement would require close

cooperation.


32

On that basis the natural expiry of the individual site leases will highlight the OPW’s exposure to

continued costs arising from these centres, whether or not RSA continue to require them

operationally.

Table 14: Test Centre Leases

Expiry of leases

Commercial leases:

Current €284,135

within 4 years to 2015 €146,829

within 9 years to 2020 €90,544

10+ years beyond 2020 €858,882

Government office leases (notional charge) €87,113

Total All Leases €1,467,505

Driving Tests delivered 2010 144,556

Lease cost per test not currently accounted for in unit charge €10.15

Source: OPW

The current cost to OPW of the leases would add approximately €10 to the cost per test delivered.

It is clear from the above analysis that greater than half of the lease costs borne by OPW on behalf of

the RSA are longer term commitments in excess of 10 years and it is therefore a consideration that no

matter whether or not RSA or an outsourced operator requires the use of these locations in the

future, the cost will continue to be carried by the Exchequer. Thus any cost saving achieved by RSA in

relation to the estate management for Driver Testing will be to the benefit only of the RSA as an

organisation but not to the public purse overall until such time as the leases expire naturally or by

agreement.

The Impact of Past Efficiencies on Unit Costs

The preceding sections underline the progress that has already been achieved by the RSA in reducing

its cost base and bridging the funding gap that has historically existed between the cost of the

delivery of driver testing and the income derived from test fees.

Table 15: Estimated Unit Costs 2007‐2010

2007 2008 2009 2010

Direct Unit Cost 89.04 83.43 74.29 68.21

Direct/Indirect Unit Cost 101.28 98.65 95.87 89.04

Full Unit Cost 109.44 106.00 105.37 99.19

Source: RSA

As a result, unit costs have also fallen significantly, as highlighted in the table. On a direct cost basis,

unit costs fell to €68 in 2010 from €89 in 2007. While this is now significantly lower than the test fee,

once indirect costs and the OPW cost of test centre provision are factored in, the service is still facing

a significant shortfall.

In 2010, the unit cost, including direct and indirect costs, was still running at €89 and once the cost of

the provision of driving test centres is factored in, the full unit cost was €99.


33

The Driving Test Funding Gap

The RSA’s fee income has risen in recent years due to a substantial increase in fee rates in 2009 and

this is helping to bridge the shortfall in RSA funding. However, with a weighted average fee of less

than €78 per test in 2010, it is clear that, while the RSA’s driver testing service is covering its direct

costs, there is still some way to go to cover the indirect costs and the cost of estate provision.

The increase in fee rates which were introduced in January 2011 will clearly help to improve the

situation, but even using a weighted average of these higher fees (based on 2010 tests conducted by

vehicle category), the average test fee would still be less than €88.

Table 16: Test Fees by Vehicle Category

1999 to 2009 April 2009 Jan 2011

Motorcycle 38 75 85 Car 38 75 85 Truck 63 110 120 Bus 63 110 120 Articulated Vehicle 76 110 120

Source: RSA

In the past, RSA test fee income was recorded as application fees received on a Cash Receipts basis

and therefore did not necessarily tally with the number of tests actually delivered. The figure for

application fee income from 2007 to 2010 is shown in Table 10. These have been adjusted by the

ratio of applications to tests delivered in each year to arrive at a rough estimate of the possible

income associated with test delivery.

On the basis of the income and outgoings recast by the analyses undertaken by the consultants in

conjunction with the RSA, a significant funding gap still remains ‐ as shown in the following table.

Table 17: Estimated Driving Test Funding Gap

2007 2008 2009 2010

Application Fee Income € 11,363,576 14,124,838 9,313,979 11,730,121

Estimated Income – Tests

Delivered*

7,388,106 7,777,840 9,942,272 10,998,919

Full Costs (table 2) 19,679,029 21,139,819 16,272,175 14,338,922

Estimated Funding Gap ‐12,290,923 ‐13,361,979 ‐6,329,903 ‐3,340,003

Source: RSA

* the RSA’s fee income from test applications has been adjusted to reflect tests delivered by the RSA using the ratio of tests

delivered to applications in each year.

The table clearly illustrates the progress that has been achieved in recent years in narrowing the

funding gap that the RSA inherited. However, the RSA changed its accounting procedures in 2010 in

respect of the recognition of driving test income from a Cash Receipts basis to an Accruals basis.

As such, the RSA is now able to identify income related only to tests delivered in 2010 and not to

applications – on this basis the fee income recognised in 2010 was €8,164,940.


34

This is arrived at by taking fee income from applications in 2010 and reducing it by the feeincome of

those persons still waiting for a driving test at the end of the year.

Table 18: The Driver Testing Service Funding Gap – Actual 2010

2010

Actual Income – Tests Delivered 8,164,940 Full Costs 14,338,922 Full Funding Gap 6,173,982

Source: RSA

On this basis, it would appear that the actual funding gap in 2010 was €6,173,982 and it is therefore

clear that further efficiencies will be necessary if the recommendation of the Special Group on Public

Service Numbers and Expenditure Programmes, that the service be provided on a full‐cost recovery

basis, is to be achieved.

Summary

This section has sought to demonstrate the very real progress that has been achieved in the delivery

of driver testing in Ireland to date – both in terms of the quality of the service and also in terms of

organisational efficiency.

However, it is also clear that once all the costs associated with the delivery of the service are taken

into account, the service still has a considerable way to go to become truly self‐financing. The

next chapter focuses, therefore, on what may be achieved by the RSA in coming years, if planned

efficiency improvements are delivered.


35

4. The RSA – The Outlook to 2015

Introduction As indicated earlier, the Special Group on Public Sector Numbers and Expenditure Programmes

recommended that driver testing should at least be fully self‐funding and should in fact be out‐

sourced to the private sector. However, in undertaking this review, and in line with the project’s

Terms of Reference, equal weight has been given to the assessment of whether the service could

continue to be delivered by the RSA but at the same time, deliver the cost‐savings recommended by

the Review Group.

The Consultants have therefore sought to establish not only where the service, as delivered by the

RSA, is at this point in time, but also, to try to establish where that service could be in coming years if

further planned efficiency improvements are realised.

In considering the option to retain the service in‐house and the scope for further rationalisation, it

was important to identify and take account of any potential “constraints” as these will impact on the

framework within which any proposed changes must be examined and, in some instances, limit the

range of options that can realistically be delivered.

The Croke Park Agreement

Of central importance, in this context, is the status of RSA employees as civil and public servants and

the limitations that this places on both RSA management and the Department of Transport.26

RSA staff are covered by the Public Sector Agreement 2010‐2014 (the Croke Park Agreement), as Non

Commercial State Sponsored Bodies. The Agreement contains a number of important provisions

which are relevant to the current study. In return for a freeze on public sector pay cuts and

protection from compulsory redundancies, public sector employees accept that efficiencies will need

to be maximised and productivity increased through revised work practices and other initiatives. In

addition, where positions become “surplus to requirements”, staff will be offered an opportunity to

re‐deploy to other areas of the public service – thereby ensuring a continued commitment to job

security within the Public Service.

This means, therefore, that in order to further rationalise the service, the RSA may reduce the

number of positions but any displaced staff will need to be redeployed to other positions within the

RSA or in the wider public sector. These staff will, however, remain on the payroll of the Exchequer

and therefore, “real” cost reductions must rely on natural wastage and negotiated efficiency‐

enhancing programmes.

A number of “Croke Park Projects” are currently the subject of negotiation with the Unions

representing driver testing administrative and technical staff. These include:

26 When the service was transferred from the Department to the RSA in 2006, driving testers were given assurance about the protection of their status as civil servants and

all the rights and entitlements that this bestows.


36

Driver Testing Technical Service Accreditations‐ ISO 9001 and 17024

The Road Safety Authority in consultation with Trade Unions has embarked on a project to

introduce external ISO 9001 accreditation across the entire Road Safety Authority. This process

will re‐engineer workflows and processes across the Authority and will help place Ireland’s driver

testing processes among the best in Europe.

In addition, the Authority has also commenced a programme to introduce ISO/IEC Standard

17024 which is a standard specifically dealing with technical assessments. It is hoped to

implement this standard across the entire enterprise and will be significant in enhancing service

to the public and driving consistency and reliability across the entire driver testing technical

assessment service.

Driver Testing Technical Staffing Accredited Training‐ HETAC Award

The RSA has also commenced a project to introduce an externally awarded formal qualification

for all driver testing technical staff. This qualification is intended to significantly enhance the

expertise of driver testers, ensure consistency and optimise service delivery. The training will be

at a higher level than the current FETAC Level 6 awarded to Approved Driving Instructors and will

be HETAC accredited. This will also help the RSA to ensure compliance with the Third EU Directive

which requires that testers must complete at least three days training per year.

DTAS – Online booking management and use of technology on test routes

The first phase of the new Driver Testing Application System (DTAS) relating to on‐line

applications has already been introduced and has proved to be very successful. During the course

of 2011 it is also envisaged that additional functionality will be added to DTAS to enable

candidates to effectively “self‐schedule” and to manage their booking on‐line. It is believed that

this will greatly assist in matching candidates to capacity and will reduce no‐shows and cancelled

tests. As these can account for close to 20% of all tests delivered by the RSA, this could also have

a significant impact on driver tester productivity. The RSA estimate that the upgrades could also

free up 2 to 3 Driver CPC administration staff within the driver testing unit.

In addition, further efficiencies are expected if plans for Phase 2 of the new IT system are

implemented. These relate to the deployment of hand‐held computer devices to be used by

testers to link directly to DTAS and which would enable test results to be captured electronically.

It is believed that this would effectively eliminate the need for paper‐based reporting by

removing the current manual result noting processes. It would also offer the opportunity for the

RSA to fill more short term cancellations as the devices would enable the RSA to be in direct

electronic communication with testers and therefore, have the ability to slot in candidates at

short notice. According to the RSA, “the use of technology on test routes will greatly enhance

service quality, will enable enhanced communication with field based staff and will significantly

automate administrative processes”. It is anticipated that this project could free up to 8

administration staff by removing the need for clerical staff to “note” test results.

Driver Testing Quality Assurance and Supervision‐ Supervisors Restructuring

This project is aimed at improving the supervisory structure within driver testing, by aligning

grades that better reflect the workload and responsibilities of the different driver testing

supervisory grades in order to ensure a systematic management of the tests standard.


37

It will also ensure greater consistency of the service, particularly in terms of test results by tester.

The RSA envisage that the costs of restructuring will be neutral.

Maximising Driver Testing Productivity/customer service

The RSA has identified 12 specific actions under driver testing productivity and customer service.

The most significant proposals in relation to the RSA’s financial position include:

o Elimination of ‘short outs’ ‐ in 2010 there 153 weeks of short outs which means that there

was non‐availability of 1,530 which, subject to negotiation, could be filled.

o Rescheduling of Winter Tests – current custom and practice requires Driver Testers to

undertake eight tests per day but this is reduced to seven tests per day in the wintertime

when reduced daylight hours means the loss of the last test of the day. The RSA estimate

that if this test was re‐scheduled it would increase capacity by 3,000 tests a year at no extra

cost to the Exchequer.

A further project under the Croke Park Agreement that could impact on the operation of the driver

testing service into the future is that concerning the Multi‐skilling/Multi‐tasking of staff. It is

understood that the RSA is exploring with the Trade Unions the possibility of training key staff such as

Driver Testers, Transport Officers and ADI Examiners so that there could be greater cross functional

work and multi‐tasking. The RSA view this as a potentially useful mechanism to manage peaks and

troughs in enforcement, driver testing and ADI regulation.

The Outlook for RSA Costs

Whilst acknowledging the fact that the proposed Croke Park Projects are still the subject of on‐going

negotiations, the Consultants requested that the RSA attempt to forecast the direct and indirect costs

of the driver testing service over the period to 2015. It was requested that in doing so that

consideration be given to any scheduled reductions in headcount associated with retirements etc, as

well as the potential reduction in “back‐office” headcount arising from the implementation of

efficiencies under the various Croke Park projects. These projections are set out in the following

table. Potential efficiencies arising from other possible changes to work‐practices, such as the

reduction in the number of short‐outs, have not been taken into account.


38

Table 19: Direct Costs ‐ Forecasts Costs by Category ‐ 2010 to 2015

2010 €

2011 €

2012 €

2013 €

2014 €

2015 €

% change 10‐15

Basic Salary 7,635,955 7,375,143 7,065,250 6,939,807 6,792,187 6,792,187 ‐11.0%

Employers PRSI 512,666 502,346 492,299 482,453 472,804 472,804 ‐7.8%

Salary and PRSI 8,148,621 7,877,489 7,557,549 7,422,260 7,264,991 7,264,991 ‐10.8%

Overtime Standard 144,459 250,000 245,000 240,100 235,298 235,298 62.9%

Overtime ‐ Driver Testers 399,793 400,000 392,000 384,160 376,477 376,477 ‐5.8%

Overtime 544,252 650,000 637,000 624,260 611,775 611,775 12.4%

Travel ‐ Domestic 198,163 188,255 184,490 180,800 177,184 177,184 ‐10.6%

Travel ‐ Foreign 2,176 2,067 2,026 1,985 1,946 1,946 ‐10.6%

Car Allowance 234,895 223,150 218,687 214,303 210,027 210,027 ‐10.6%

Subsistence ‐ Foreign 1,812 1,721 1,687 1,653 1,620 1,620 ‐10.6%

Subsistence ‐ Domestic 531,790 505,200 495,096 485,194 475,490 475,490 ‐10.6%

Travel and Subsistence 968,836 920,393 901,986 883,935 866,267 866,267 ‐10.6%

Staff Related Costs 9,661,709 9,447,882 9,096,535 8,930,455 8,743,033 8,743,033 ‐9.5%

Other Direct Costs 198,550 202,322 201,176 200,052 198,952 198,952 0.2%


Indirect Costs 3,011,158 2,779,652 3,256,765 3,235,857 3,221,201 2,703,950 ‐10.2%

Total Direct /Indirect Costs 12,871,417 12,429,856 12,554,476 12,366,364 12,163,186 11,645,935 ‐9.5%

Source: RSA

These projections indicate that staffing costs could fall by a further 11% over the next five years.

While overtime costs are projected to increase slightly – this is mainly a contingency provision in the

accounts to cover any unforeseen events. In reality, if the changes to work‐practices and

improvements to the scheduling system proposed under Croke Park are actually implemented, then

the overtime costs are also likely to reduce. This would also be the case for travel and subsistence

costs, which could fall more significantly if more efficient work practices are implemented.

In relation to indirect costs, the expectation is that these will fall by over 10% over the next five years.

This is largely due to a decline in central staff allocation to driver testing – which will result in a near

30% reduction in the indirect salary costs allocated to the service. Other staff related expenses such

as overtime and travel and subsistence are also expected to fall significantly over the period.

In contrast – and for the purpose of the forecasting exercise ‐ other indirect costs, such as

administrative overheads are expected to remain broadly constant over the period to 2015. Some of

these cost estimates appear to be relatively high, given the planned improvements to the IT systems

etc. It seems likely, therefore, that there is further scope for the RSA to reduce some of the most

significant areas of expenditure.


39

Table 20: Indirect Costs ‐ Forecast Costs by Category 2010‐2015

2010 2011 2012 2013 2014 2015

Basic Salary 628,642 441,110 441,110 441,110 441,110 441,110

Other Allowance 16,193 11,335 7,934 5,554 3,888 2,722

Employers PRSI 43,275 30,293 21,205 14,843 10,390 7,273

Overtime Standard 43,881 30,717 21,502 15,051 10,536 7,375

Travel ‐ Domestic 19,928 13,950 9,765 6,835 4,785 3,349

Travel ‐ Foreign 716 501 351 246 172 120

Subsistence ‐ Foreign 575 402 282 197 138 97

Subsistence ‐ Domestic 16,817 11,772 8,240 5,768 4,038 2,826

Incidentals ‐ Domestic 48 34 24 16 12 8

Incidental Taxis/Buses 878 615 430 301 211 148

Training 1,281 0 0 0 0 0

Employee Development 693 693 693 693 693 693

Uniforms/Protective Clothing 2,200 2,200 2,200 2,200 2,200 2,200

Consultancy Fees ‐ HR 27,128 27,128 27,128 27,128 27,128 27,128

Consultancy Fees ‐ IT 55,646 55,646 55,646 55,646 55,646 55,646

Bank/Credit Card Charges 88,717 88,717 88,717 88,717 88,717 88,717

Insurance ‐ Property 2,818 2,818 2,818 2,818 2,818 2,818

Insurance ‐ Professional 595 595 595 595 595 595

Insurance – Directors etc 1,316 1,316 1,316 1,316 1,316 1,316

Insurance ‐ Motor 2,026 2,026 2,026 2,026 2,026 2,026

Meetings 1,605 1,605 1,605 1,605 1,605 1,605

Computer Consumables 9,270 9,270 9,270 9,270 9,270 9,270

Office Equipment Maintenance 7,982 7,982 7,982 7,982 7,982 7,982

Office Supplies & Stationary 100,326 100,326 100,326 100,326 100,326 100,326

Postal Services 206,934 206,934 206,934 206,934 206,934 206,934

Couriers 2,547 2,547 2,547 2,547 2,547 2,547

Printing Expenses 57,304 57,304 57,304 57,304 57,304 57,304

Audit Fees 27,671 27,671 27,671 27,671 27,671 27,671

Payroll Administration 32,219 32,219 32,219 32,219 32,219 32,219

Telecommunications Maintenance

54,195 54,195 54,195 54,195 54,195 54,195

Accommodation Hire 19,617 19,617 19,617 19,617 19,617 19,617

Building Security Costs 7,357 7,357 7,357 7,357 7,357 7,357

Furniture & Fittings ‐ Consumables

33,375 33,375 33,375 33,375 33,375 33,375

Facilities Management 184,529 184,529 184,529 184,529 184,529 184,529

Rates 23,760 23,760 23,760 23,760 23,760 23,760

Rent for Buildings/Test Centres 70,450 70,450 70,450 70,450 70,450 70,450

Buildings Repairs & Maintenance 171,861 171,861 171,861 171,861 171,861 171,861

Energy Costs 105,464 105,464 105,464 105,464 105,464 105,464

Premises Maintenance 218 218 218 218 218 218

Fleet Management 16,471 16,471 16,471 16,471 16,471 16,471

Mobile Phone Costs 14,784 14,784 14,784 14,784 14,784 14,784

Telephone Land Line Call Costs and Rental Costs

115,032 115,032 115,032 115,032 115,032 115,032


40

2010 2011 2012 2013 2014 2015

Credit Card Remittance Costs 11,019 11,019 11,019 11,019 11,019 11,019

Driver Testing Application Support

321,245 321,245 321,245 321,245 321,245 321,245

Hardware & Server Support 96,294 96,294 96,294 96,294 96,294 96,294

Software Licenses & Maintenance

102,018 102,018 102,018 102,018 102,018 102,018

Website Hosting Fees 54,045 54,045 54,045 54,045 54,045 54,045

Legal Costs 13,548 13,548 13,548 13,548 13,548 13,548

Depreciation ‐ Buildings & Leasehold Improvements

511 511 511 511 511 511

Depreciation ‐ Furniture and Fittings

74,868 74,868 74,868 74,868 74,868 74,868

Depreciation ‐ Motor Vehicles 25,485 25,485 25,485 25,485 25,485 25,485

Depreciation ‐ Specialist/Telecom Equipment

24,433 24,433 24,433 24,433 24,433 24,433

Depreciation ‐ Hardware/IT Equipment

71,345 71,345 578,345 578,345 578,345 71,345

3,011,158 2,779,651 3,256,766 3,235,846 3,221,202 2,703,951

As indicated earlier, the RSA does not typically account for the lease costs of its driving test centres

directly as these are borne by the OPW. However, to arrive at an estimate of the full cost of the

service, it is important that these are also taken into account.

The following table therefore includes the figures which the OPW has provided on the current “cost”

of the driving test estate. These have simply been projected forward on a “steady state” basis as

many of the centres are provided on the basis of long leases. (The possible implication of a

rationalisation of the RSA’s estate is considered later in this chapter).

Table 21: Forecast Costs by Category ‐ including Current Estate Provision

2010 2011 2012 2013 2014 2015 % change 10‐15


Indirect Costs 3,011,158 2,779,652 3,256,765 3,235,857 3,221,201 2,703,950 ‐10.2%

Total Direct/Indirect Costs 12,871,417 12,429,856 12,554,476 12,366,364 12,163,186 11,645,935 ‐9.5%

Current Centres Costs 1,467,505 1,467,505 1,467,505 1,467,505 1,467,505 1,467,505 0.0%

Full Cost 14,338,922 13,897,361 14,021,981 13,833,869 13,630,691 13,113,440 ‐8.5%

Source: RSA/OPW

The following table shows the change in unit costs over the period to 2015 – on the basis of direct,

direct and indirect, and full costs. In addition, the RSA has also provided its estimates of the potential

number of tests it expects to deliver over the forecast period.


41

As the table below illustrates, on this basis, the RSA is anticipating that the full unit cost of the

service will fall by 18% by 2015 to €81.3 per test, which would ensure that the service was covering

its costs.

Indeed, on the basis of the RSA’s projections for costs, the service would effectively “break‐even”

with 160,000 tests delivered per year by 2012.

Table 22: Forecast Unit Costs 2010‐2015

2010 2011 2012 2013 2014 2015 % change

10‐15

Tests Delivered (RSA) 144,556 155,000 161,300 161,300 161,300 161,300 11.6%



Full Unit Cost 99.19 89.66 86.93 85.76 84.51 81.30 ‐18.0%

Forecast Demand

The decline in the unit costs expected by the RSA over the next five years is due not only to a decline

in the RSA’s overall cost base but also to an anticipated increase in the number of driving tests

delivered. According to the RSA, the number of tests delivered will increase from 144,556 in 2010 to

155,000 in 2011 and 161,300 in the period from 2012 to 2015.

It is, however, important to “stress‐test” these assumptions as any decline in test numbers would

have a significant negative impact on unit costs and, given the current “rigidities” in the system, could

more than offset gains due to enhanced efficiencies and improved tester productivity.

It is understood that when the RSA took over the delivery of driver testing, there was no formal

demand forecasting model in place and it has therefore developed its own approach which draws on

the number of test applications, the number of learner permit holders and the number of

unsuccessful driving test applications in Ireland. However, while this may be useful for short term

forecasting, it is likely to be less useful over the medium to long term.

The difficulties of forecasting demand for driving tests are well documented (and were set out in

some detail in the RSA’s response to the C&AG Report). In other countries, the demand for driving

tests has been closely aligned with demographic factors as there has been a culture which

encouraged a person reaching the age of 16 or 17 to apply for a provisional and then shortly

afterwards, progressed to sitting a driving test.

In Ireland, however, historically, this linkage between age and driver testing has been far weaker.

This appears to have been partly due to economic and cultural reasons but also to policy factors – and

in particular, the fact that in the recent past learner drivers could drive unaccompanied on a

provisional license for almost an indefinite period of time.


42

Figure 4: Tests Conducted by Age Profile of Candidate

Source: RSA

Figure 5: Relative Share of Tests Conducted by Age Category

Source: RSA

This seems to be starting to change, however. As illustrated by the charts above, candidates aged 26

plus have been in the majority for much of that period (and in some years accounted for over 60%). It

would appear that now the backlog of tests has been addressed and there is a more structured

approach to the transition from learner driver permit to the driving test that candidates in the

younger age groups are starting to become more important. Indeed, in 2010, candidates in the 16‐21

age group accounted for 32.0% of the total, significantly higher than in previous years.

This link to demographic factors is expected to become even more important in coming years as the

RSA continues to introduce measures aimed at encouraging learners to move in an orderly fashion

from learner permit to full licence. However, while this will mark a significant achievement for the

RSA, it could also pose a significant risk for the organisation – given the scale of emigration of young

people that is now being seen.


43

DKM Forecasts

The following section considers the possible impact of demographic changes on the demand for

driving tests over the coming years. DKM has developed an econometric model which relates driving

test applications to the population aged 15 to 49, but also attempts to take account of the impact of

policy changes by including a “dummy variable” in those years with policy‐induced peaks in

demand.27

The following chart illustrates the degree of “fit” between actual and estimated test applications. As

can be see, the model appears to predict, with a reasonably good degree of accuracy, the actual level

of test applications in any given year.

Figure 6: Actual and Estimated Driving Test Applications ‐ DKM Model

This model was then used to forecast potential test applications for the ten year period to 2021. As

indicated above, the model uses the population of people in the 15 to 49 year age bracket as the key

variable. While the broader age cohort, 15+, was also tested, the narrower age group was found to

provide the best results. This is relevant because of the anticipated changes in this particular group

over the forecast period.

As illustrated in the following chart, while the total population of people in the 15+ age group is

expected to continue to increase over the next ten years (albeit at a slower pace than in recent years)

the specific age group 15‐49 is actually expected to decline. And this could have important

implications for the RSA’s driver testing service.

27 Other models were also tested using different age cohorts and including indicators of economic activity etc – but this form of model was found to provide the best “fit”

to the actual data and indeed, explained between 80 and 90% of the variation in driving test applications with a good degree of accuracy.


44

Figure 7: Population Projections by Key Age Categories

Source: DKM demographic model, CSO

The particular assumptions underpinning these population forecasts are set out in Appendix 2.

Essentially, DKM has used three different scenarios to take account of different fertility, mortality and

migration levels. Clearly, the factor that is expected to have the most significant impact on this age‐

cohort in the next ten years is emigration.

DKM has used the following scenarios:

1. The base case (M3) assumes average annual net‐migration of 25,000 in the period 2011 to 2016, followed by a balanced migration flow from 2016‐2021.

2. The high case (M2) assumes average annual net‐migration of 10,000 a year in the period 2011 to 2016 followed by a net‐inflow of 15,000 on average each year in the period 2016 to 2021.

3. The low case (M4) assumes an average net‐outflow of 35,000 a year between 2011 and 2016, followed by a moderation in the rate of out‐flow to an average of 15,000 a year between 2016 and 2021.

DKM National Net Migration Assumptions, Average Annual Flows

DKM M2 DKM M3 DKM M4

2006‐2011 +4,000 +4,000 +4,000

2011‐2016 ‐10,000 ‐25,000 ‐35,000

*2016‐2021 +15,000 0 ‐15,000 Source: DKM

It is important to remember that these are annual averages over each of the five year periods, and in

the context of recent developments may appear somewhat conservative (the ESRI, for example, is

forecasting that net‐migration will reach 100,000 in 2011 and 2012).


45

The results of the econometric model using the base case as well as the high and low estimates for

population in the 15‐49 age group are shown in the following chart and are set out in more detail in

the table below.

Figure 8: Forecast Test Applications to 2021 ‐ DKM Model

Table 23: Test Application Forecasts 2011‐2021

Base High Low

2010 154,166 154,166 154,166 2011 156,365 156,365 156,365 2012 141,878 160,456 130,318 2013 136,598 157,079 124,034 2014 130,989 154,263 116,998 2015 125,643 151,465 110,427 2016 120,514 148,719 104,222 2017 139,142 166,507 112,626 2018 136,852 166,419 108,262 2019 136,067 167,612 104,895 2020 135,187 168,726 101,577 2021 134,320 169,853 98,368

Source: DKM

These results would seem to suggest that it is only under the more optimist assumptions about

migration and population change that test applications28 will be maintained at current levels or

increase modestly in the longer term. Under all other assumptions, the model would predict a

decline in applications – and as indicated above, this could have a significant adverse effect on the

unit costs associated with driver testing, unless mechanisms were in place to enable the RSA to

respond quickly to changes in demand by re‐deploying staff and re‐directing resources away from

testing. Whilst it is acknowledged that there can be significant limitations with any statistical model, it

does help to illustrate the potential “down‐side risk” facing the Authority in coming years.

28 It is important to again stress the difference between test applications and tests delivered. In general, tests delivered tends to be lower than applications because of

waiting times, cancellations etc.


46

It is also acknowledged that the scale of this risk could be overstated due to the fact that individuals

contemplating emigration may be even more inclined to try to obtain a driving license before leaving

the country. At the same time, however, the introduction of the requirement to complete a set

number of hours of training with an Accredited Driving Instructor before being eligible to apply for a

test, may act as a financial and practical deterrent to people that are forced to emigrate for economic

reasons.

While it is clearly impossible to say with any degree of accuracy how these competing forces will

impact on driver testing applications over the next few years, it is nevertheless essential that these

risks are recognised and factored into future planning.

To underline this fact, the Consultants have stress‐tested the RSA’s cost estimates under alternative

demand conditions. In the following table, the effect of using DKM’s base, high and low forecasts up

to 2015 are shown. For the purposes of the sensitivity analysis, the figure for applications has been

used – though again it is important to stress than these have historically been higher than the number

of tests actually delivered.


47

Table 24: Volume Forecast Scenarios

Estimated Unit Costs 2010 2011 2012 2013 2014 2015

RSA FORECASTS Total Direct & Indirect Costs 12,871,415 12,429,856 12,554,476 12,366,364 12,163,186 11,645,935

Full Cost 14,338,920 13,897,361 14,021,981 13,833,869 13,630,691 13,113,440 No. Driving Tests Delivered 144,556 155,000 161,300 161,300 161,300 161,300

Total Direct / Indirect Unit Cost 89.04 80.19 77.83 76.67 75.41 72.20

Full Unit Cost 99.19 89.66 86.93 85.76 84.51 81.30


DKM BASE CASE Total Direct & Indirect Costs 12,871,417 12,429,856 12,554,476 12,366,364 12,163,186 11,645,935

Full Cost 14,344,417 13,902,856 14,027,476 13,839,364 13,636,186 13,118,935 No. Driving Tests ‐ Delivered 144,556 148,547 134,784 129,768 124,440 119,361 Total Direct / Indirect Unit Cost 89.04 83.68 93.15 95.30 97.74 97.57

Full Unit Cost 99.23 93.59 104.07 106.65 109.58 109.91


DKM HIGH ESTIMATE (LOW MIGRATION)

Total Direct & Indirect Costs 12,871,417

12,429,856

12,554,476

12,366,364

12,163,186

11,645,935

Total Costs 14,344,417

13,902,856

14,027,476

13,839,364

13,636,186

13,118,935

No. Driving Tests Delivered

144,556

148,547

152,433

149,225

146,550

143,892 Total Direct / Indirect Unit Cost 89.04 83.68 82.36 82.87 83.00 80.94

Full Unit Cost 99.23 93.59 92.02 92.74 93.05 91.17


DKM LOW ESTIMATE (HIGH MIGRATION)

Total Direct & Indirect Costs 12,871,417

12,429,856

12,554,476

12,366,364

12,163,186

11,645,935

Full Costs 14,344,417

13,902,856

14,027,476

13,839,364

13,636,186

13,118,935 No. Driving Tests Delivered 144,556 148,547 123,802 117,832 111,148 104,906 Total Direct / Indirect Unit Cost 89.04 83.68 101.41 104.95 109.43 111.01

Full Unit Cost 99.23 93.59 113.31 117.45 122.68 125.05

Note: DKM model forecasts applications ‐ tests delivered assumed to be 95% of applications


48

It is clear that even under DKM’s High Estimate (i.e. low migration) unit costs will be significantly

higher than those projected by the RSA, and indeed, would still mean a significant funding shortfall.

Such a situation would obviously pose serious demand management issues for the Authority. While

in the past the problem confronting the RSA was how to deal with excess demand, resulting in the

need to outsource significant numbers of tests, the problem in coming years could be around the

existence of excess capacity and the inability to reduce staffing levels and overhead costs in a timely

manner.

The RSA is already achieving its required waiting times – and whilst acknowledging that short‐term

bulges can always appear due to adverse weather conditions etc – there seems little value in

expending resources simply on continuing to drive down waiting times. It would appear, therefore,

that given the potential risks to the demand for tests in coming years, that the RSA’s efforts need to

focus not only continuing to enhance the efficiency of existing staff, but also on ways of introduction

greater flexibility in the use of technical and administrative staff. Projects such as the multi‐

skilling/multi‐tasking could be crucial in this regard.

Potential Estate rationalisation The impact of potential rationalisation of the estate was considered by RSA in a previous exercise

undertaken Mazars/DKM29 and the draft findings suggested a number of centre closures and

investments in key locations. The full implications of such a programme of change are complex and

would require revisiting in view of the subsequent decline in demand forecasts since the original

study. However, the consultants and RSA have estimated the cost savings impact of the envisaged

programme, assuming rapid implementation, as follows:

Table 25: Test Centre rationalisation Costs Savings Potential Saving from locations

identified for rationalisation Current

Estate Costs €

Indirect Costs 2010 (table2) 3,011,158

Costs directly attributable to centres to be closed 111,004

Head Office costs apportioned to centres to be closed 282,441

Head Office salary Costs apportioned to centres to be closed 36,599

430,044

Total estate cost, net of rationalised estate 2,581,114

The outcome of this analysis suggests that the annual saving to RSA of a programme of centre

rationalisation could reach €430,044. This would represent a cost saving to RSA but, as explained in

the earlier section, the underlying lease costs of most test centres no longer required would continue

to fall to OPW at a cost of €1,467,505 annually until the expiry of individual leases. The majority of

these leases as set out in Table 7 would not expire until beyond 2020.

29 Review of Estate Requirements for Driver Testing Nationally – Mazars and DKM, Draft Report January 2010


49

Summary The outlook for RSA costs going forward includes a number of cost cutting proposals which are

subject to agreement with the unions. However, other proposals aimed at making the service more

efficient are unlikely to result in overall cost saving as there will be no corresponding reduction in

staff numbers.

The potential to rationalise the estate is similarly constrained by the lack of flexibility for OPW to

divest itself of existing leases. Nevertheless, from RSA’s perspective, a rationalisation of the estate

could potentially deliver sizeable savings. In addition, the RSA is currently incurring quite significant

indirect costs across a number of areas. There is likely to be further significant scope for more

aggressive cost reductions through a further rationalisation of back‐office and overhead activities.

Whilst acknowledging the progress that has been achieved by the RSA in cutting unit costs and

tackling the funding gap, these savings could be significantly undermined by a downturn in demand

for tests. Indeed, it would appear that demand could be the single biggest influencer over unit costs

and funding gap for the RSA going forward. DKM Economics’ range of forecasts, based on Ireland’s

changing demographics, points to the fact that the RSA could be facing a significant down‐side risk

which, given the lack of flexibility in staffing, could undermine the cost improvements that have been

achieved in recent years. This is something that the RSA needs to be conscious of and to factor into

its demand management strategy.


50

5. Outsourcing to a Private Provider

Introduction

This Chapter focuses on the findings of the market testing exercise and the results of consultation

with a number of potential private service providers.

Outsourcing Cost Comparison Process

In line with guidance established under the Public Sector Agreement 2010‐2014 (‘Croke Park

Agreement’), where outsourcing might be an option in improving efficiency of service delivery, there

is a process for testing this proposition. This involves seeking cost comparisons from the private

sector and conducting an analysis alongside the public sector’s proposals for retaining services in‐

house. The twin track approach we have adopted is as follows:

(3) to further refine and verify the RSA’s projections for future self‐sufficiency and retention of

the DTS by implementing the various efficiency projects, some initiated under Croke Park, others ongoing; and

(4) to develop a generic but sufficiently indicative shadow bid cost to represent the comparative costs that might arise in an outsourced scenario.

Operator Involvement

The Consultants approached a number of operators who have experience of providing the type of

services under consideration and three operators agreed to cooperate and provide certain

information in the context of a range of parameters and assumptions we provided to standardise

their responses.

In order to achieve this level of voluntary cooperation from the operators, the Department was

sympathetic to the operators’ need for an appropriate level of commercial confidentiality. At the

same time the Department needed to ensure openness and transparency in communicating with RSA,

employees, unions and other stakeholders in presenting the ultimate findings which may become

part of a decision making process regarding the future delivery of the DTS.

A potential solution which struck a balance between the operators concerns and the Department’s

requirement for necessary disclosure of proper and independent research to support

recommendations was suggested to the Steering Group and then to the operators. The approach

involved:

invite a number (ideally 3 or more) of interested parties to engage in a brief period of dialogue to understand the outline specification sought

issue a common high‐level specification to all interested parties

allow a period for preparation of responses

receive responses and harmonise outcomes in preparing a hybrid or average model to represent a nominal outsourced cost model

the individual responses will be held by FPM/DKM rather than the Department who shall be presented only with the ‘blended’ data.


51

Whilst recognising the limitations of this approach, it was hoped that it would provide sufficient

information to enable the Department to engage meaningfully in a discussion around the relative

merits and costs of the outsourcing approach in coming to a decision.

Of course any information provided by operators would be recognised to be done under goodwill and

could not be held to be either indicative or binding in any possible future tendering process. It was

stressed the fact that any information provided would be used only to inform the research into the

appraisal of possible options for the delivery of driver testing and NOT as part of any potential future

tender process.

Moreover, it was emphasised that at no time during the process would any data or information from

one operator be shared with another; we kept the identity and indeed number of respondents

confidential from one another and ideally would not have them referred to in the final report except

by oblique reference to a number of global and national players in the market.

In this way the responses from the Operators reflecting their individual commercial decisions would

not be recorded in any documentary fashion that would allow their identification, nor would their

estimates of potential costs be ranked or ‘selected’, but instead a blend of data received would be

created to provide an anonymised ‘typical’ cost.

Operator concerns would be further managed by presenting sensitivities around the results to ensure

we captured the full range of possible outcomes in any potential future tender process. These

sensitivities will be at predetermined levels and will be clearly stated NOT to relate to actual data

provided.

Responses

In terms of information and format sought, for the purposes of this study, we were mainly interested

in the estimated costs backed by only outline technical proposals and confirmation that the resources

indicated and costed would be reasonably representative of a potential future tender proposal. We

were NOT seeking detailed technical proposals as such will not form part of our study and would be

unreasonable to expect of operators for this study. We did, however, set out some specific

requirements, to ensure conformity of approach from participating organisations’ responses. These

included, for example:

Operators to confirm their understanding of the terms of reference

confirmation of acceptance of key parameters and assumptions as will be provided e.g. demand forecasts, customer service standards (e.g. max. waiting times, call centre performance etc), estates provision, staff qualifications etc

indicative and costed staffing structures

indicative estates management proposals (overview, not site‐by‐site)

indicative ICT solution proposed (overview, not full technical spec)

NO supplementary or commercial information or methodologies are required

no technical methodology regarding conduct of the test or system architectures is required

the main outcome of significance to the study will be the cost per test to the RSA for provision of the service (this to be shown net and gross for VAT).

Appendix 3 sets out the information provided to the operators and upon which they based their

responses.


52

Sensitivity tests

As shown there was a set of standard assumptions upon which Operators were to base their costings.

There was also a range of sensitivities for which we sought costings to highlight those factors which

were most cost sensitive for delivery of the testing service. These included the following:

Table 26: Requested Operator assumptions Factor Standard Assumption Sensitivity

Contract duration 10 years 7 years

Demand 150,000 test p.a. 100,000 tests p.a. 125,000 tests p.a. 175,000 tests p.a. 200,000 tests p.a.

Staffing:

Technical Assume no staff TUPE’d from RSA, i.e.

all new employees

(a) assume all staff transfer under

TUPE

Admin/support Assume no staff TUPE’d from RSA, i.e.

all new employees

(a) assume all staff transfer under

TUPE

Working hours etc Assume your preferred approach to

delivering the service

(a) Assume current 8

test/day/tester; Weekdays only

Estates: Assume test available from as many

locations as required ensuring 90% of

population no further than 35 miles

from a centre. Assume the following: 9 all‐category test centres

(with appropriate off‐round compound)

7 car and motorcycle test centres (with appropriate off‐round compound)

8 car only test centres These to be geographically

spread according to access needs

(a) based on current number of

locations (see RSA website)

Important Note: FPM Accountants and DKM have not performed, nor is it appropriate for this

appraisal that there be sufficient level of detail to perform, a due diligence or audit of the data

presented by the operators. We have relied upon the assurances and confirmations requested and

provided by the operators with regards to their approach and costs but these can only be robustly

tested through procurement.


53

Following issue of the terms of reference for the exercise, the operators were allowed a three week

period during which to prepare their data and raise any clarifications.

All three operators returned their results within the timescale and these were reviewed and data

collated and summarised as shown below:

Charging Mechanisms

The Operators proposed a range of charging mechanisms to the RSA under the different sensitivities

we had requested. Paramount in all responses was the ability to maintain the current end‐user test

fee. Any reduction of cost of the outsourced service as compared with current provision might be

regarded as available for investment by RSA on its other activities. The three different proposals

were:

One operator proposed a levy mechanism to the RSA which was at a single fixed percentage

of fee and therefore in proportion to demand. This equates to a discounted fee compared

with current levels.

The second operator proposed a straightforward fee per test at levels below the net‐of‐VAT

fees currently charged.

The third operator proposed both a lower fee per test and an undertaking to share any over‐

recovery of costs, effectively a ‘gainshare’. This concept was not elaborated upon and would

presumably require open book accounting and independent certification.

Thus the fee per test is a minimum return proposed by all three operators beyond which one

proposed a further share of any efficiencies above what was anticipated.

Fee levels

There was a range of response on the level of fee that would be charged to RSA per test conducted.

To protect the commercial nature of the responses received, we will not show individual cost data

nor attribute data to individual operators.

Without disclosing the commercial figures provided by the operators, at a high level we can confirm

that all three operators envisaged delivering their service within the level of the current public fee.

The range of fees proposed (either fee to be charged or fees net of levies/royalties to be returned)

was from approximately 20 to 30% lower than the net‐of‐VAT current fee equivalent, €70. In other

words the operators were able to propose a fee which, even after being grossed up for VAT is

significantly lower than the RSA Fee of €85.

For the 150,000 volume level which was used as a realistic modelling assumption, the operator test

fees ranged from €54 to €63 net of VAT (which would be charged and non‐recoverable by RSA),

equating to €65.34 and €76.23 including VAT.

This in itself indicates significant cost efficiencies as against the RSA unit cost which does not carry

VAT and as shown in Chapter 4, the RSA’s calculated unit cost remains significantly higher than the

fee levels proposed by operators.


54

VAT

The issue of VAT is important in this analysis, in that the RSA is a public entity that cannot charge VAT

on its services nor reclaim VAT on services procured. Therefore, if RSA is charged a fee by an

operator for delivering testing services, this fee, including VAT must be less than the current test fee,

which does not include VAT. In other words, at the current test fee level of €85 equates to a

maximum fee chargeable by an Operator to RSA of €70.25 excluding VAT.

Test volumes

We have reviewed the demand forecasts as discussed in Chapter 4 and on this basis asked the

Operators to model a range of test volumes starting with 150,000 tests p.a. and a number of

sensitivities: o 100,000 p.a. o 125,000 p.a. o 175,000 p.a. o 200,000 p.a.

Across this range of test volumes, some Operators presented reductions in fee levels through

economies of increasing scale in test volumes, whilst others had consistent levels of fee regardless of

volumes, explained by an increased requirement for investment in service delivery. The differing

assumptions may have arisen through assumptions regarding flexibility of IT systems and solutions as

well as the ease of increasing administrative support and driving test staff. As already mentioned in

our previous description of the RSA cost analyses, the RSA may not have the flexibility to downsize

operations to maintain unit costs to the degree demonstrated by the private sector proposals.

All Operators stated they could flex their delivery to meet fluctuations upwards and downwards in

demand for tests.

Impact of TUPE (Transfer of Undertakings (Protection of Employment))

Under legislation, employees have certain rights protecting employees whose business is being

transferred to another business. Effectively this means they have the right to transfer to the new

employer with their terms and conditions of current employment protected.

As well as volume sensitivities, we asked Operators to consider the costs assuming (a) that existing

employees exercised their rights under TUPE and transferred to the Operator, and (b) that no TUPE

took place and that Operator recruited its own workforce and RSA staff remained in the public sector.

This was clearly a significant factor in the modelling of costs for the Operators and it was apparent

that they generally were of the view that in a full TUPE transfer situation, there was considerably less

or indeed no benefit to the Operator.

Table 27: Impact of TUPE and Volume on Operator Fee Costs Test Volume No TUPE transfer TUPE transfer

Operator A B C A B C

100,000 √ √ √ √ X X

125,000 √ √√ √ √ X X

150,000 √ √√√ √ √ √ X

175,000 √ √√√√ √ √ √ X

200,000 √ √√√√√ √ √ √ X

X=no test fee proposed

√=test fee proposed lower than current cost where √√√√√=increasingly significant savings


55

The table above captures that in a non TUPE transfer scenario, where no current staff would transfer

to the Operator who would recruit new staff, there were savings to be made and one Operator

envisaged these to be volume‐related whilst the other two estimated constant costs.

Under the TUPE model where the existing staff are assumed to transfer in entirety to the Operator,

there clearly was not felt to be the same scope for efficiency improvements and cost reductions. This

results in one Operator offering no cost savings and another offering them only above the 150,000

volume level which we have earlier established to be at the upper levels of demand forecast. The

third Operator did not believe the difference would be significant over the longer term and would still

provide a cost saving.

Staffing levels

The three operators all proposed staffing levels below those of RSA currently where TUPE was

assumed not to apply. Where TUPE would apply, they have assumed the current RSA staff numbers

continue.

Table 28: Indicative Operator Staffing Levels Operators RSA 2010 RSA 201530

Chief Tester 1 1 1

DT Supervisors 4.5 10 9

Driver Testers 95 112.5 100.25

Principal Officer 1 0.5

Assistant Principal 1 1

HEO 1 1

EO 5 5 3.20

Clerical Officers 14 34.7 26.74

Total 120 166.1 132.19

Technical – No. 101 123.5 110.25

Admin – No. 19 42.7 32.44

Technical ‐ Share 84% 74.3% 83.4%

Admin ‐ Share 16% 25.7% 16.6%

Ratio Tech/Admin 5.25 2.9 5.02

The operators had differing proposals in relation to staffing numbers but all were consistently lower

than RSA’s proposals. In part this is due to operating proposals from the operators as follows:

Increased use of technology

Multi‐skilling within technical staff

Involvement of frontline staff in training and QA

Longer scheduled testing days, 6 days

Use of existing call centre operations to handle RSA business

30 RSA estimate of staffing by 2015


56

Some of the above are already being deployed by the RSA, others such as extended testing hours and

amalgamation into larger call centres are differentiating factors for the operators.

Staff training An important principle going forward in RSA is the training of all examiners to HETAC6 level. This was

required of Operators and all three have confirmed arrangements for suitable training and

qualification. This would provide a common level of knowledge and training across the technical

staff.

Quality control All the three operators stressed the importance of quality control and the measures they would put in

place to manage this aspect. These included dedicated supervisory roles and quality monitoring and

reporting. The use of ICT was also highlighted as enabling the early identification of any problems or

issues with regard to test delivery.

Estates The approach of the operators differed in so far as there was view that estate provision could be

made without reliance in the OPW network, rather they would provide the necessary locations

through their own arrangements. We are aware that among the operators, there are those with

significant estate resources already and the capability expressed by others that they are experienced

in procuring estates requirements nationally. None stated an express requirement to novate the

OPW estate although earlier discussions indicated a willingness to consider so doing if required by

RSA, whereupon they would seek to renegotiate the existing leases.

IT Systems IT solutions were to the fore of all submissions with very comprehensive coverage of the ability of the

systems proposed to provide real‐time data and information both to customers and to RSA. The in‐

car systems would also be relied upon to mitigate the level of monitoring and provide detailed

information which could be analysed in a number of ways to highlight and extrapolate problems with

testers, candidates or test routes.

Overall, the three operators provided information which illustrated and supported their claims

regarding quality of service and standards enforced. In practice of course RSA would require to

monitor the contract either in‐house using the retained management structures or outsourced as per

NCTS. The level of IT information available now as compared with a number of years ago should

significantly mitigate the monitoring effort required and the NCTS provides a robust contract as a

template to refine.

International Benchmarking In considering the option to out‐source the service to a private provider, the Consultants investigated

the range of service delivery models in other countries to determine if there were an examples where

the service had been outsourced to private operators; how successful the exercise was deemed to be,

and whether there were any particular learning points that could be drawn from their experience.

The findings of the international research are set out in Appendix 1. However, it is clear from this

research that state provision is still the most prevalent form of provision in the vast majority of

countries in Europe. While there are private companies active in the provision of services in Germany


57

and Belgium, in both cases, the service was delegated or endowed to these companies many years

ago and the service is not subject to a public tendering process.

It would appear that Finland is the only country that has a formal tendering process for its driver test

service. This dates back to 1999 when the service, which was previously provided by the State, was

outsourced on a regional basis to private operators. Finland is, however, an interesting test‐case

given the similarity of scale with Ireland.

The other example that proved to be of particular interest is that of Ontario in Canada. Again the

service was previously State provided but issues had arisen in relation of the length of waiting times

and overall customer service. Following an extensive examination of the options, it was decided that

the most cost‐effective option was to outsource the service to a private company in the form of a 10

year concession. Following a competitive tendering process, Serco was awarded the contract in 2003.

As part of the agreement, the Ontarian Ministry of Transportation Office received an up‐front

concession payment of CAN $114 million. Serco introduced a number of significant efficiencies and it

would appear that quality standards have been maintained while customer service levels have

improved considerably.

In a number of other jurisdictions, the private provision model is somewhat different. In Alberta,

Canada, for example, private agents are authorised to conduct driver tests and award licenses. In

New Zealand too, private agents play a central role in the driver test system.

For the purposes of this study, however, and given the scale of the operation to be out‐sourced and

the likelihood of the existence of significant economies of scale, the most appropriate model would

seem to be the out‐sourcing of the complete service as one single lot and over a period that would

enable a private company to recover its initial investment.

Summary

We received submissions from the three international operators we had contacted with the aim of

building a picture of the potential for quantitative and qualitative improvements in the delivery of

Driver Testing services. There was a range of approaches and resulting fees and levies, but all three

were of the view that significant cost savings could be offered whilst retaining the quality of the

service and indeed enhancing some aspects of it. These savings reflect the more intensive use of IT

systems for booking, scheduling and reporting test results; increased productivity per driving

examiner and significantly reduced administrative function.


58

6. Assessment of the Strategic Options for the Delivery of the Test Service

Introduction Previous sections have examined the current and projected cost of driver testing provision by the RSA

as well as the potential cost of delivery by a private operator. This section endeavours to evaluate

the relative merits of both options, having regard for which option provides the most efficient, cost‐

effective service delivery option, not only at the level of the driver testing service but also at the

Exchequer level.

Direct Delivery by RSA As indicated in Chapter 4, the RSA is endeavouring to build on its achievements over the last four

years and introduce other efficiency measures aimed at further reducing the cost of delivering the

driver testing service. The range of Croke Park Projects currently being negotiated with the Unions

offer the possibility of savings of over 9% in direct costs and 10% in indirect costs over the period to

2015. On the basis of a further increase in demand for driving tests, this would result in a position

where the RSA is covering the full cost of the driver testing service in coming years.

However, as also highlighted in Chapter 4 there are significant down‐side risks to these cost

projections due to a possibility of a downturn in test applications. It is clear that if applications fall

evenly relatively modestly over the period to 2015, then all the efficiency gains which have been

achieved by the RSA would be eliminated and deficit situation would quickly re‐emerge. It is

essential, therefore, that this risk is recognised and incorporated into any future planning exercises.

It also underlines the fact that if the option of direct delivery of driver testing services by the RSA is to

remain a viable financial option, then the drive to further improve and enhance efficiencies must

continue.

The review of the RSA’s cost structure – and the consultation with a number of potential private

providers – highlighted a number of possible areas for further improvement.

Direct Costs: As indicated in Chapter 3, direct costs now account for close to 70% of the cost of the

delivery of driver testing, and the vast bulk of these direct costs are staff related costs, such as

salaries, PRSI, overtime and travel and subsistence. It is clear that major strides have been taken to

reduce these costs over the last four years, with the result that in 2010 direct costs were down by

over 38% relative to the 2007 figure (Table 2) , and are expected to fall by a further 9% in the period

to 2015 (Table 12), as a result of natural wastage.

Despite this, the overall number of technical staff relative to the number of tests conducted still

appears to be relatively high.


59

The following table provides an estimate of the number of tests delivered per tester since 2007. (No

attempt has been made to adjust the figures for differences in the length of time for different tests).

While it is understood that the RSA does not set a target for individual testers, the C&AG report noted

that theoretically the maximum number of tests that could be achieved per tester would be 1,824

and even allowing for losses due to illness, holidays, training etc, a target of 1,550 was possible.

While the Consultants are not recommending the introduction of a specific target, the figures would

appear to suggest that there are still further productivity improvements that could be achieved.

It is also interesting to note the private sector comparator – with private operators assuming that up

to 1,760 tests could be conducted each year, based on 220 working days and 8 tests per day. This

estimate relies upon a very high utilisation rate and whilst this may be somewhat “ambitious” on the

part of the private operators, it does serve to underline the further scope that exists within the RSA.

Table 29: "Productivity" of RSA Driver Testers

2007 2008 2009 2010 Private Operators

Tests Delivered 179,818 199,425 154,429 144,556 150,000

Technical Staff (excl 10 supervisors)

135 128 117 113 85‐100

Tests Per Tester per annum

1,332 1,558 1,320 1,279 1,760

In this context too, it is important to point to the additional capacity that the RSA could achieve

through the reduction in cancellations, no‐shows and “no‐gos”. As indicated earlier, some 20% of the

tests “delivered” by the RSA are not actually “conducted” because candidates do not turn up for the

test or they do not have the proper documentation or a road‐worthy vehicle in which to take the test.

It is anticipated that the improvements planned for the RSA’s booking and scheduling systems will

help to reduce this element significantly in coming years – and as a result, the capacity of the

technical staff should also increase significantly.

A number of the Croke Park projects are also expected to deliver further efficiencies from the roll‐out

of Phase 2 of DTAS and also productivity improvements based on reduction in long/short outs and

winter testing etc. These have not been factored into the RSA’s cost projections to 2015.

While improvements in tester productivity will improve the efficiency of the operation, they will only

translate into a reduction in unit costs if either demand for testing is growing or if headcount is

reduced. As indicated earlier, the Consultants believe that the DTS is facing significant downside risk

due to rising emigration. It is imperative, therefore, that if the service is to be retained within the RSA

that greater flexibility is introduced to enable the RSA to respond to changes in demand as rapidly as

possible. The RSA’s Multi‐tasking/Multi‐skilling project could prove vitally important in addressing

future peaks and troughs in demand.

Another factor that is worth highlighting in relation to the RSA’s delivery of the service is the age

profile of the technical staff. The following chart shows the percentage of technical staff in different

age bands. It is striking that some 55% are aged 51 and over.


60

While this may result in a relatively high level of “natural wastage” in coming years – it could also

have implications for the RSA in the longer term if the service is retained in‐house.

Source: RSA

In relation to administrative or back‐office staff, it is clear that here too significant rationalisation has

taken place, with numbers down by over 40% since 2007. However, the ratio of technical to admin

staff is still 3 to 1 (Table 21), which appears relatively high, particularly compared to the benchmark of

private operators who are working on the assumption of a ratio of just 5 to 1. Again, this would

suggest that there is further potential scope for cost‐reduction in this area and RSA confirms they

plan to reallocated staff to other duties which will reduce this ratio to match that of the operators by

2015.

Indirect Costs: While the RSA has made significant progress in reducing direct costs in recent years,

indirect costs have increased very substantially and indeed, more than doubled between 2007 and

2010 to just over €3 million or 21% of the full cost of DTS delivery. While this was partly due to

changes in the way that central costs were allocated to DTS, it does, however, also illustrate the very

significant “overhead” that the DTS is required to carry.

Over 20% of this “overhead” is related to management and corporate service staff. As part of the

stakeholder consultation with Union representatives, the point was made that the focus of the RSA’s

efficiency efforts tended to be concentrated heavily on front‐line and administrative staff and that

management grades and corporate services personnel appeared to be relatively unaffected by

rationalisation. While this may indeed have some foundation in the statistics – with indirect staff

costs increasing by 8% over the last four years – the RSA is projecting a sharp reduction in the next

few years (indeed, between 2010 and 2011, indirect salary costs are predicted to fall by 30%).

In contrast, administrative costs (associated with postage, telecom, IT, estate management etc) –

which increased by over 400% over the last four years – is projected to remain relatively high. Whilst

it is acknowledged that many of these cost projections are for contingency purposes, there does


61

appear to be significant scope for much deeper expenditure cuts in many areas – and this is clearly an

area where cost savings could be made with minimal impact on front‐line services.

Impact of RSA estate rationalisation The other significant element of the cost of the delivery of the driver testing service is the cost

associated with the estates provision. This section considers the possible impact of the

rationalisation of the RSA’s estate on the full cost of driver testing provision as set out in Chapter 4.

Whilst the lease costs for the driving test centres are covered by the OPW, the number of test

locations does impact on the RSA’s costs in the following ways:

Maintenance and upkeep

Insurance

Telephone

reception

RSA performed an analysis of cost reductions possible by rationalising existing locations as shown in

Table 17 in the sum of €430,045. When this is factored into the RSA unit cost calculations, the results

are as shown in the following table.

Table 30: Forecast Costs by Category ‐ Rationalised Estate Provision

2010 2011 2012 2013 2014 2015 % change 10‐15


Indirect Costs 3,011,158 2,779,652 3,256,765 3,235,857 3,221,201 2,703,950 ‐10.2%

Total Direct /Indirect Costs 12,871,417 12,429,856 12,554,476 12,366,364 12,163,186 11,645,935 ‐9.5%

Estate lease Costs – Current Centres

1,467,505 1,467,505 1,467,505 1,467,505 1,467,505 1,467,505 0.0%

Potential RSA savings from estate rationalisation

‐430,045 ‐430,045 ‐430,045 ‐430,045 ‐430,045 ‐430,045 0.0%

Full Cost 13,908,877 13,467,316 13,591,936 13,403,824 13,200,646 12,683,395 ‐8.8%

Source: RSA/OPW

The resultant unit costs are set out in the following table.

Table 31: Forecast Unit Costs 2010‐2015 – Rationalised Estate Provision

2010 2011 2012 2013 2014 2015 % change

10‐15

Tests Delivered (RSA) 144,556 155,000 161,300 161,300 161,300 161,300 +11.6%



Full Unit Cost 96.26 86.92 84.30 83.13 81.87 78.67 ‐18.3%

Source: RSA/OPW

By 2015 the projected unit cost at €78 is approx 18% lower than 2010.


62

Outsourcing Driver Testing Services

Outsourced test fee As indicated in Chapter 5, the “shadow‐costing” developed from the input of a number of potential

private operators suggests significant cost savings are possible in the delivery of the service. Indeed,

on a unit cost basis, private operators claim – on average – to be able to deliver the service for

approximately €71 (inclusive of VAT) per test. This compares with the RSA’s current estimated unit

cost of €99 per test (Tables 8 and 15) and its projections of unit cost of €81 by 2015 (Table 15), taking

account of a number of efficiencies under the Croke Park Agreement.

Another factor that is worth noting in relation to the out‐sourcing option, relates to the treatment of

risk. As indicated earlier, the RSA is potentially facing a significant down‐side risk if demand for tests

starts to decline in coming years. Clearly, if the service were out‐sourced to a private operator, that

risk would also be out‐sourced.

Exchequer level analysis

So, while on the face of its, there would appear to be a clear cost advantage to be had by out‐

sourcing the service to a private operator, there are a number of other important factors that also

need to be taken into account. And indeed, as part of the project’s Terms of Reference, the

Consultants were asked to focus not only on the most cost effective model for service delivery but

also to consider the wider impacts of each option, including impacts at Exchequer level.

In this context, the following factors also need to be included in any assessment of the options for the

delivery of the service;

4. VAT – as indicated previously, the RSA, as a public sector organisation, does not have to account

for VAT on the driving test fees it charges the public. In contrast, private operators would be

liable for VAT and this would have to be accommodated within the overall ceiling of the driving

test fee. This VAT element therefore forms a new source of revenue for the Exchequer. In terms

of comparing RSA unit costs against those of the Operators, it is therefore appropriate to use the

test fee net of VAT to recognise the Exchequer benefit of the VAT raised and submitted by an

operator raising the fee to RSA per test delivered.

5. RSA estates cost borne by OPW – it is the case that the majority of the current test centre estate

is funded directly by OPW and that the rationalisation of the estate may result in cost savings for

RSA. However, as indicated previously, the OPW will continue to bear these costs until the expiry

of the leases in question and therefore will form an ongoing cost for the Exchequer.

6. Driver Testing staff costs – in a scenario where an outsourced service is procured, and where the

staff do not elect to transfer across to the private operator but exercise their right to remain in

the public sector, then these staff costs remain a public sector expense and are relevant to the

comparison. While it may be possible to re‐deploy a number of these staff members to other RSA

activities or to other areas of the public service, the likelihood is that they will remain an ongoing

cost for the RSA or the Exchequer.


63

By means of illustration, the following table sets out the costs and revenues arising under both the

retained and the outsourced scenarios in 2015 based on RSA projections. The calculations are based

on 150,000 p.a. test volume and show clearly that the staff costs are the overriding factor in the

exchequer‐level cost comparison.

Table 32: 2015 Retained and Outsourced Comparison

Services Retained Services Outsourced

€ € € €

Fee income based upon 150,000 p.a., €88 weighted average fee

13,200,000 Fee income based upon 150,000 p.a., €88 weighted average fee

13,200,000

RSA unit cost 2015 inc OPW costs (€81.3, table 15, based on 161,300 tests), restated for 150,000 tests

87 Ave Outsourced Cost per test (inc VAT)

7131


13,050,000


10,650,000

RSA 'operating surplus' 150,000 RSA 'operating surplus' 2,550,000

Add: benefit of VAT on outsourced fees rendered to Exchequer

1,848,347

Surplus before adjustments for OPW and PSA

4,398,347

Less: OPW estate costs ‐1,467,505

RSA 'Surplus' after Exchequer adjustments, pre‐PSA

150,000

RSA 'Surplus' after Exchequer adjustments, pre‐PSA 2,930,842

Less: PSA Retained staff costs (direct and indirect, basic salary and employers PRSI)

‐7,713,384

RSA 'Surplus' after all exchequer adjustments

150,000 RSA 'deficit' after all exchequer adjustments

‐4,782,542

The table above illustrates that at the RSA unit cost level, the outsourced scenario at €10.65m could

potentially save in the region of €2.4m in 2015 compared with the RSA in‐house service at €13.05m.

The surplus on Driver Testing Services under the outsourced scenarios at €2.55m is sufficient to cover

the cost of monitoring such a contract (for comparison the NCTS contract monitoring is in the region

of €1m per annum plus the internal administrative time of two people part‐time).

The remainder of such a surplus could also contribute towards other important activities of the RSA

including road safety.

31 Note this reflects an average fee from the three operators, and some fees were lower than this


64

In effect, at the RSA ‘level’, the outsourced option provides significant savings which would be

increased further when taking account of the benefit to the Exchequer of VAT rendered, the potential

saving increases to approximately €4.4m within that one year.

However, in order to appreciate the wider Exchequer level impact of both options, we need to adjust

the outsourced option for the costs of the existing OPW leases which will continue in the medium to

long term and for costs of RSA retained under Croke Park. The private operators have made their

own assumptions regarding provision of estates within their unit costs thus the OPW estates costs

would be additional and surplus to requirements. It is possible that in negotiation a number of sites

might be taken on by an operator which would reduce this cost.

If all existing Driver Testing services staff either transferred off public sector payroll under TUPE to an

operator, or were found alternative employment in public sector, then the outsourcing option would

demonstrate clear savings otherwise the €8m cost of staff will have to continue to be borne and

therefore added back to the option costs. Following adjustment for the OPW estate costs and

retained staff costs, the €4.4m surplus becomes a €4.8m deficit arising from these adjustments.

The same exercise is conducted in the table below for the next 5 years using RSA’s unit costs and

recalculating these on the basis of a volume of 150,000 tests the same as the operators have

modelled and more akin to the DKM projections.

Table 33: 2011‐2015 Retained and Outsourced Comparison

2011 2012 2013 2014 2015

Retained

RSA Forecast Volume 155,000 161,300 161,300 161,300 161,300

Direct/Indirect Unit cost (Table 15) 80 78 77 75 72

Estates OPW cost (1,467,505) 9 9 9 9 9

Full unit cost (Table 15) 89 87 86 84 81

Total cost 13,902,856 14,027,476 13,839,364 13,636,186 13,118,935

Unit cost at 150,000 pa 93 94 92 91 87

Weighted average fee 88 88 88 88 88

RSA fee income @ 150k tests 13,200,000 13,200,000 13,200,000 13,200,000 13,200,000

(Deficit)/surplus on Driver Testing (702,856 ) ( 827,476 ) (639,364 ) (436,186 ) 81,065

Outsourced

Ave fee inc VAT 71 71 71 71 71

Fee cost raised to RSA 10,650,000 10,650,000 10,650,000 10,650,000 10,650,000

less VAT raised ‐1,848,347 ‐1,848,347 ‐1,848,347 ‐1,848,347 ‐1,848,347

Net cost of outsourced tests 8,801,653 8,801,653 8,801,653 8,801,653 8,801,653

Weighted average RSA fee income @ 150k tests

13,200,000 13,200,000 13,200,000 13,200,000 13,200,000

Outsourced surplus before OPW and PSA adjs

4,398,347 4,398,347 4,398,347 4,398,347 4,398,347

Less: Estates cost 1,467,505 1,467,505 1,467,505 1,467,505 1,467,505

Outsourced surplus after OPW before PSA adj

2,930,842 2,930,842 2,930,842 2,930,842 2,930,842

Less: retained staff 8,348,892 8,019,864 7,878,214 7,716,492 7,713,374

Exchequer adjusted cost of outsourcing

‐5,418,050 ‐5,089,022 ‐4,947,372 ‐4,785,650 ‐4,782,532


65

The table above sets out the annual surplus on the delivery of driving tests under an outsourced

contract is of the order of €4.4m per annum before adjustment for OPW estates costs and the impact

of Croke Park on retained staffing costs.

Whilst in terms of accounting at the RSA level there are clear savings to be made and a surplus to be

generated, arising from both the OPW estates and PSA staffing issues, the Exchequer will be worse off

under an outsourcing proposal at least until such time as OPW leases expire and Driving Test staff

retire or leave the service, or can be meaningfully redeployed to other activities.

Monitoring Standards

While there will still be a need for oversight, the actual number of staff required to perform this

function is likely to be relatively minor32 or indeed could also be out‐sourced as with the NCTS. At

the levels of annual surplus indicated in Table 26, there would be ample capacity to cover the costs of

such monitoring, whether it be undertaken in‐house or outsourced as is the case with NCTS where it

costs in the region of €1m per annum plus the internal cost of two staff part‐time. The remainder of

the surplus could be deployed for use in other RSA activities.

Summary of key factors in outsourcing consideration

Along with the financial and economic analysis a number of qualitative factors were raised and for

ease all are set out in the following table which compares the relative merits of each approach.

Table 34: Comparison of Retention versus Outsourcing Factors Retention Outsourcing

Cost of

Driver

Testing

RSA unit costs falling but still short of full cost recovery – and unlikely to be able to reduce to private sector benchmark

Significantly lower costs due to greater driver tester productivity and flexibility and significantly reduced admin headcount

Risk of declining test numbers and lack of flexibility to respond – so unit costs start to rise again

VAT gain to Exchequer

Levy/Surplus to fund RSA monitoring

Risk transferred to private operator

Quality

and

standards

Standards maintained Need to draft robust contract and appropriately monitor to ensure that quality is not compromised in search for lower costs

Risk of duplication of management structure in private provider, RSA and Department (IMPACT point)

Other

Issues

Flexibility to deal with underutilisation in low demand periods

RSA staff unlikely to want to transfer so staff costs will remain with RSA/government unless staff can be re‐deployed to other activities

Ongoing rationalisation/ improvement of estate

Estate costs ‐ ongoing cost of vacant premises unless another tenant can be found

32 In Finland, for example, just five staff members are involved in monitoring the out‐source contract for a service that delivers a similar number of tests. It is

noted by TRAFI that these members of staff are also engaged in other duties. TRAFI also noted that in an ideal world (and if there were no restrictions on public sector

headcount) it would allocate 8 people to this function..


66

Factors Retention Outsourcing

Ongoing monitoring requirements

Impact on other RSA activities

In discussions with stakeholders, concerns were also raised about the potential impact of out‐

sourcing on the viability of the RSA itself. The view was expressed that if such a large and important

element of the organisation was removed, then important synergies and knowledge could be lost and

this would have a knock‐on in other areas of the organisation.

In an outsourced scenario, the vast majority of the DTS’s existing technical and admin staff would no

longer be required. While it is understood that there may be options for redeployment to other areas

where RSA has been developing new services, the likelihood is that a significant percentage would

still be under‐utilised and would need to be redeployed to other areas of the public service. Given

the particular skills set which many of these staff members possess, and also their locations around

the country, it is not altogether clear that they could easily be redeployed.

In a broader context, concern was also expressed about the maintenance of driver testing quality

standards. It was pointed out that the RSA’s over‐riding focus is on saving lives, not cost efficiency. A

private operator, in contrast, while contractually obliged to maintain quality standards at a specified

level, will necessarily be motivated by commercial factors rather than safety. This, it was felt, could

potentially impose a high cost on society in terms of lives lost or lives damaged. The mitigation to

such concerns would be the strength of the contract and the adequacy of monitoring.


67

7. Summary and Conclusions Driving Test Services, progress so far

In chapter 3 the report acknowledged the significant improvements made by RSA since its inception

and the commitment to quality and improving efficiency. There have been significant reductions in

unit costs and improvements in customer service including waiting times reduced to 10 weeks,

telephone and on‐line booking as well as increasingly well trained and qualified examiners.

As at 2010, the RSA unit cost per test stood at €99 including estates provision. As of January 2011,

the weighted average test fee is €88 so a gap remains.

Potential for further efficiency

In chapter 4 the future impact of further efficiencies and service delivery improvements anticipated

by RSA were considered. Implementing these changes, but not yet including those which are mainly

efficiency related rather than cost reduction, RSA estimate the unit cost will reduce by some 18% to

€81 by 2015. However, this also assumes that demand for driving tests will increase – and there is a

significant risk that this may not actually occur and this should be factored into RSA’s projections.

Outsourcing cost comparison

Chapter 5 set out the private sector approaches from the three operators who were approached and

agreed to assist in this study all provided proposals supporting their view that Driver Testing services

could be provided by them at lower cost and with maintained quality. There was a range of costs per

test provided for the range of test volumes. For the 150,000 volume level which was used as a

realistic modelling assumption, the operator test fees ranged from €54 to €63 net of VAT (which

would be charged and non‐recoverable by RSA), equating to €65.34 and €76.23 including VAT.

Table 35: Unit Costs comparison Test volume RSA 2007 RSA 2010 RSA 2015 Operators

c150,000 109 99 81 65 to 76

Rationalised estate 78

The table above shows that even with the reduced estate, the operator costs are less than those

deliverable by RSA under the best case scenario of estates rationalisation. This is also based on a

average from the three operators involved in the study and the lower of the three would significantly

further undercut the RSA unit cost.

We have demonstrated potential operational savings in the region of €4m per annum which arises

from the comparison of a fairly optimistic RSA projection against moderate operator proposals using

the average of three responses. There is a range of sensitivity mainly above but possibly below our

findings which can only be rigorously tested in procurement but there seems every reason to believe

that other factors such as Croke Park aside, private operators can offer to deliver the service at lower

cost than retention within RSA.


68

Arguments for retention of public sector delivery of service

During discussions with the RSA staff union representatives a number of points were made which are

important to be considered in the overall evaluation of options:

Significant changes to working practices and conditions have been achieved over recent years

The workforce is dedicated to public safety and would have concerns about safety standards

in an outsourced scenario

View that cost reductions and rationalisation tends to occur mainly below management level

With regards to that last point, RSA makes the following comments:

At setup of the organisation certain senior posts were suppressed to ensure greater frontline staff levels

The organisation is currently carrying a number of vacancies at Director, AP and HEO levels and their work is being covered by colleagues

Senior staff in the organisation are accessible outside of normal work hours via mobile or email connectivity

The Consultants are also conscious that there exist already two outsourced contracts which provide

equally important public safety services in the form of the Driver Theory Test and the National Car

Test.

Both contracts have been running for a number of years as outsourced services and after the usual

settling in problems, RSA now manages both contracts and contractors very effectively and

efficiently. The provision of these services by private operators has been enforced through tightly

defined contracts married to robust monitoring procedures which could form the basis for an

outsourced Driver Testing service contract in the future.

On the basis of the cost evidence analysed by the consultants and supported by RSA, there is a clear

track record of cost reduction from inception to the present day. There does appear however to be a

limit to the further efficiency and cost reduction that will be achievable within the next few years

without more radical measures and indeed by 2015, the unit cost will still be undercut significantly by

private operator estimates. It is also important to note that the comparison modelled an average

operator fee, not the lowest fee that was proposed, so potentially in procurement further savings

might be driven out in competition.

Conclusions and Next steps

Whilst acknowledging the improvements achieved by RSA in recent years, there seems to be a case

for exploring further the potential of private operators to provide the Driver Testing service given the

ongoing funding gap and level of unit cost within RSA. The NCTS and Theory Testing Contracts have

been well managed by RSA and are operated satisfactorily in terms of public service, safety and cost.

Additionally, given that the operators have given their information at this stage without detailed bid

development, but out of goodwill and enthusiasm for the potential opportunity for business, it would

be prudent to test their assumptions and costings through a rigorous procurement exercise.


69

The comparative analysis highlighted the significant cost benefit to RSA of an outsourced contract

which could deliver an operating surplus for the organisation to cross‐subsidise its other statutory

activities.

However it was equally clear that the implementation of the safeguards under the Croke Park

Agreement negated this surplus and highlighted that outsourcing would come at a cost to the

Exchequer unless alternative employment or natural wastage absorbed the existing workforce

delivering Driver Testing Services.

The Department of Transport needs now to consider the merits of undertaking a procurement

exercise to evaluate outsourced Driver Testing services whilst having limited scope for cost reduction

on staff costs given the Croke Park Agreement without which the case for change would be more

easily substantiated.

As an immediate step, RSA should further examine its internal costs for greater savings from

delivering the services, seeking to close the funding gap which is also particularly sensitive to the

demand forecasts which appear optimistic based on DKM projections.

The RSA wishes to use the funding being spent by OPW to operate a meaningful SLA with OPW and to

also exploit synergies with other contracts such as NCT and Driver Theory Test Centres where

appropriate.

As a medium term proposal, RSA should consider the rationalisation of the estate in reducing the

number of test centres and particularly in the context of, at best stable and quite possibly, reduced

demand levels in the short to medium term. This should be considered as an urgent priority and will

require close liaison with OPW regarding the prioritisation of sites for closure along with the

requirement for re‐provision of some site which have been identified as unsuitable in terms of

location of logistics to conduct modern test.

RSA has demonstrated significant progress from its inception in terms of service, quality and

customer care and now needs to demonstrate that these can be maintained at an economic cost and

preferably as a surplus generating activity to fund other important statutory obligations.


Appendices


i

Appendix 1: International Benchmarking This section examines the range of precedents for the private provision of driver testing in other

countries. The Consultants have used internet searches, information provided by CIECE, the

international commission for driver testing, as well as feedback from telephone conversations with

market participants in other countries to inform the international review.

The following table summarises the finding of this research. It is clear that public provision (either

directly by the State and State agencies, or state‐backed organisations) is the predominant form of

provision in the majority of countries in Europe. There are, however, a number of interesting

alternative models both in Europe and internationally – and these are examined in more detail below.

Table 36: Summary of Organisation of Practical Driver Testing in Selected Countries

Country CIECA Information on member

organisations

Additional Information

Austria

Organised by local/regional authorities

Driver testing is delivered by “local” transport authorities so actual delivery can vary from location to location. In Vienna, for example, the test is organised and arranged by the driving schools – where theory tests are also conducted. Practical tests are delivered by police officers and civil servants who are authorised to deliver the tests. These are, however, conducted outside their normal working hours – and they are paid separately for undertaking the tests. [Source: Telephone conversation with .....]

Belgium A number of private providers are involved in the provision of driver testing and vehicle inspection, which is organised on a regional basis. The service was awarded by Royal Decree, rather than competitive tender.

Bulgaria Executive Agency Road Transport Administration, which is a organisation under the control of Ministry of Transport, Information Technologies and Communications

Canada – Alberta

Vehicle registrations, driver licensing and testing are handled through private sector companies known as registry agents and licensed driver examiners. http://www.transportation.alberta.ca/543.htm Road testing services are provided through the registry agent network. Road tests are conducted by licensed driver examiners, with scheduling arranged by the registry agents. Road test fees are determined jointly by the registry agent and driver examiner, and can vary by location. The government receives a fixed amount of $5 per test, with the agent and examiner portions added to this. http://www.transportation.alberta.ca/Content/docType47/Production/Roadtestservices.pdf

http://www.transportation.alberta.ca/543.htm�


ii


organisations


Canada – British Columbia

The Insurance Corporation of British Columbia is a provincial Crown corporation established in 1973 to provide universal auto insurance to motorists. It is also responsible for driver licensing, and vehicle licensing and registration. http://www.icbc.com/driver‐licensing

Canada ‐ Ontario

Driver examination services are delivered by service provider, Serco DES Inc., with almost 100 DriveTest locations across the province. Every year, they conduct over 1.3 million knowledge and road tests. Source: http://www.serco.com/markets/transport/index.asp The service was outsourced in 2003 by way of a concession and following a public tendering process. Serco pays A$114 million for the concession which runs for a ten year period. Source: http://www.mto.gov.on.ca/english/dandv/driver/driver‐exam.shtml

Canada ‐ Quebec

Government Agency

Croatia Croatian Automobile Club ‐ Civic association, conducted a public authority as authorized professional organizations.

Czech Republic Traffic departments which are part of the local authority of locality with extended activities

Denmark The Danish Police ‐ a government agency

Estonia The Estonian Road Administration, the testing organisation, is a governmental authority which is under the administration of Ministry of Economic Affairs and Communications

Finland Driver testing has been outsourced since 1999. Private providers are selected based on a competitive tendering process to deliver tests in 19 different regions. Contracts typically run for 4 years with an option to extend for a further 3 years. The system is overseen by the Finnish Transport Safety Agency (Trafi). http://www.ake.fi/AKE_EN/Driving_licences_and_examinations/

A‐Katsastus, a private provider of vehicle inspection and driver testing services, has been awarded the contract in all 19 regions. http://www.a‐katsastus.com

France Government. The DSCR department of the Ministry of Ecology, energy, sustainable development and the sea.

Germany Driver testing has been delivered by private companies since the War. TUV is the organisation which is responsible for testing in (the old) West Germany with DEKRA responsible for East Germany.

Great Britain The Driving Standards Agency is an executive agency of the Department of Transport. The Agency is a public sector body and employees are civil servants.


iii


organisations


Hungary Government agency. Due to the change of

government in June 2010, the whole system will be reformed. The Hungarian ministry of transport will most likely cease to exist. However driver testing will remain the competence of the state.

Latvia The Latvian Road Traffic Safety Directorate is the Ministry of Transport (state owned) company is the only testing organization

Lithuania State Enterprise. The institution implementing the rights and obligations of the Enterprise owner is the Ministry of the Interior.

Luxembourg Private Company (SNCT) SNCT is responsible for all aspects of road traffic safety. SNCT is a company with a juridical private status but in which however the State is the majority shareholder. Other shareholders are the “Banque et Caisse d’Épargne de l’État” as well as private sector interest groups (Federation of vehicle repair workshops, Association of vehicle dealers, Automobile Club, Road Safety Organisation, etc). [Source: https://www.ereg‐association.eu/about/organisations/snct.php]

Malta Government Authority

Monaco Performed by government officials ("inspecteurs fonctionnaires au gouvernement") in accordance with European legislation.

Netherlands The CBR is a government agency, acting under responsibility of the Dutch Ministry of Transport

CBR (the Driving Test Organisation) is the Dutch statutory body responsible for administering driving tests. Each year CBR holds around half a million theory tests and half a million practical driving tests. CBR operates almost 200 test centres throughout the country. It is only responsible for driving tests; driving instruction in the Netherlands is provided by private driving schools. http://www.cbr.nl/315.pp

http://www.cbr.nl/315.pp�


iv


organisations


New Zealand There is one driver testing organisation (a

private company) which is authorised and contracted to act as an agent of the NZ Transport Agency. Theory testing is carried out by driver licensing agencies who are also authorised and contracted for this and other driver licensing services. The NZ Defence Force has also been authorised as an agent and is limited to testing its own personnel.

http://www.nzta.govt.nz/licence/getting/where‐to‐go/index.html Driver licenses provided by NZ Transport Agency driver licensing agents

The Automobile Association (AA) (external link)‐ most AA offices

Vehicle Testing New Zealand (VTNZ) (external link) ‐ selected VTNZ stations

Vehicle Inspection New Zealand (VINZ) (external link)‐ Auckland, Lower Hutt, Christchurch and Dunedin only

AA Driver and Vehicle licensing agent can handle all Driver and Vehicle Licensing requirements including International Driving Permits (IDP's). VTNZ started its life in 1994 as a State Owned Enterprise following a review of the Ministry of Transport. VTNZ was privatised in 1999 and the Motor Trade Association purchased the company. As well as vehicle inspections, many VTNZ testing stations can issue or renew Driver Licences. The prices for all licences are set by the New Zealand Government, via the NZ Transport Agency. Only testing officers employed or contracted by the NZ Transport Agency, our testing agent ‐ New Zealand Driver Licensing (1998) Ltd ‐ or the NZ Defence Force can conduct practical driving tests. These testing officers must have a current testing officer (O) endorsement on their driver licence.

Northern Ireland

Driver testing in Northern Ireland is Government run and the Driver and Vehicle Agency, which is a government agency, are the only organisation authorised to conduct driver testing.

Poland Government

Portugal Portugal has both public and private exams centers.

Exams are taken at a IMTT (Institutio do Mobiladade es dos Transportes Terrestres) approved Driving Exam Centre (Centro de Exames de Condução) There are approximately 33 centres nationwide. The exam must be taken in the local area IMTT area of registration http://lisbon.angloinfo.com/countries/portugal/drivlicence.asp

Romania Government. The driver testing organisation in Romania is The Driving Licensing and Vehicles Registration Directorate (DLVRD) within the Ministry of Administration and Interior

Slovenia Government agency

Sweden Governmental authority

Switzerland The cantonal authorities

Finland

Within Europe, the Finnish model is perhaps the most interesting in terms of the current study due to

its relatively recent experience of out‐sourcing and also because of the scale of the driving test

http://www.nzta.govt.nz/licence/getting/where-to-go/index.html�

http://www.nzta.govt.nz/licence/getting/where-to-go/index.html�

http://www.aa.co.nz/Location/Pages/result.aspx�

http://www.vtnz.co.nz/search�

http://vinz.co.nz/locations.shtml�


v

service. Finland has a population of over 5.2 million (though this is highly dispersed), and conducts

approximately 130,000 practical driving tests a year.

Until the 1990s the service was provided by the Finnish Department of Transport. However, it would

appear that historically, vehicle inspection and driver testing services were very closely linking and

when the decision was made in 1996 to out‐source vehicle inspection, it was seen as a natural follow‐

on that driver testing would also be outsourced as it became virtually unsustainable on its own. In

addition, the decision to outsource was also driven by continued efforts to improve efficiencies and

reduce public sector headcount. The first out‐sourcing contract for driver testing began in January

1999 following a competitive tendering process.

Under Finnish legislation, TRAFI (the Transport Safety Agency) has overall responsibility for driver

testing but has the ability to buy these services from private providers.33 The legislation also sets out

a number of conditions for out‐sourcing and how this can be done, including the fact that it must be

done on a regional basis. While the legislation stipulates that government can choose how many

regions, it was decided that 19 regions would be the most appropriate for demographic and

geographical reasons. It was also felt that this would help to introduce competition into the market

and, in particular, enable smaller companies to compete for regional contracts.

Under the legislation, the length of the out‐sourcing contract is also set at 4 years, but with an option

to extend for a further 3 years if desired. Since the service was outsourced, however, there have

been four “contract periods” – 1999‐2002, 2003‐2006, 2007‐2010 and 2010 to date.

The government did not have to address any particular TUPE issues when the service was outsourced

as these were largely dealt with when the vehicle inspection was outsourced in 1996. It appears,

however, that many former government employed driver testers set up their own businesses to

tender for regional contracts.

TRAFI report that when the service was initially outsourced there was significant competition for the

majority of the regional contracts. In 1999, for example, 30 offers were received from 10 different

companies and 7 were actually selected. However, in more recent years, the number of potential

providers submitting competitive tenders has fallen significantly and in fact in recent tendering

exercises, A‐Katsastus34 (a Finnish based company providing vehicle inspection and driver testing

services in a number of Northern European countries) has managed to win all 19 contracts and

therefore is currently the sole provider of services.35

A‐Katsastus reports that it employs 250 examiners but half are also involved in vehicle inspection. It

was also estimated that approximately 10 people were employed on the administration of the driver

test service.

The company offers services at some 100 locations throughout Finland. These test centres or test

stations are provided by A‐Katsastus and are either owner or leased by the company. In was noted,

however, that many of the test stations simply comprise of a reception area with computers to

33 This task was formerly undertaken by AKE (the Finnish Vehicle Administration) 34 The service is provided by its subsidiary Ajowarma Ltd. 35 [TRAFI report that in the latest tendering exercise they received only 2 offers and A‐Katsastus was successful.]


vi

enable candidates to sit a theory test. Some stations are bigger to allow for motorcycle and HGV

tests but in general it was reported that centres were fairly basic.

It was also noted that at the present time, test results are logged manually and then inputted onto a

computer to enable data analysis etc.

The contract term specifies the number of test centre locations, opening times, test waiting times etc.

Test fees are, however, set by government following the results of the competitive tendering process

and are the same for all regions. However, it is understood that because of demographic and

geographic factors and the fact that the number of potential candidates can vary significantly from

region to region, the national test fee may not cover the cost of deliver in some regions.

Nevertheless, on a national basis, TRAFI make a surplus which is used to cover its administrative costs

and also the costs associated with the development of the service. (The private provider collects the

fee on TRAFI’s behalf).

While the delivery of driver testing is out‐sourced, TRAFI is still statutorily responsible for driver

testing and for ensuring that national legislation and EU Directives are implemented. Contracts sets

out these requirements and the minimum standard that private operators have to meet to ensure

compliance with legislation.

The state agency monitors the service closely, through a combination of statistical analysis of results

by examiner, test centre etc, as well as visits to test stations and oversight of driving examiners. It

reports that 5 people are currently involved in monitoring and supervision activities – though they

also spend time on other activities.36

Feedback from TRAFI indicates that the system is considered to be working well and has delivered

real efficiencies. The main issue, however, is around the lack of competition for recent tenders and

the fact that prices increased significantly – after several years of stability – forcing TRAFI to increase

test fee rates to cover the cost of the service. (The current test fee for a car is €55). On the other

hand, it was noted that it was easier to deal with one large organisation, with all the appropriate

quality and information systems in place, than a series of smaller companies where quality could vary.

Germany

In Germany there are 2 private companies – TUV and DEKRA ‐ involved in the delivery of driver

testing. Unlike Finland, however, it appears that these companies were simply “endowed” with the

responsibility for the provision of the service and there has never been a competitive tendering

process involved.

Both TUV and DEKRA are large scale test, standard and certification bodies involved in a wide range

of activities, including vehicle inspections and driver testing.

TÜV covers the 11 “old” federal States, including West Berlin, and operates an office in each federal

State. DEKRA is responsible for the 5 new federal states (i.e. the former East Germany). There are

36 TRAFI noted that ideally, they would allocate 8 people to this function, but due to reductions in public sector headcount, they were only able to allocate 5 people to it

and these were also required to undertake other functions.


vii

reported to be 970 centres for driver testing nationwide dealing with some 1.7 million tests a year. (It

was noted, however, that test numbers are declining because of demographic factors).

Number of tests 2009

Motorbikes Cars Trucks Buses Other Total

150 909 1 339 995 193 592 9 235 40 168 1 733 899

Source: http://www.kbashop.de/wcsstore/KBA/Attachment/Kostenlose_Produkte/fe_p_2009.pdf

It is understood that TÜV and DEKRA jointly employ some 1,000 testers throughout Germany. These

are all highly qualified test engineers, however, who are also involved in doing other tasks, including

vehicle inspections etc.

Testers and back‐office staff

Testers 1000

Secretariat 400‐500

Planning/evaluation 15

Source: TÜV

The rationale for the “liberalisation” of the service on a regional basis dates back to the post War era

and the desire to avoid the centralisation of activities in the State.

It would appear that apart from setting standards and monitoring test statistics to ensure consistency

etc, the State has little day to day involvement in the delivery of the test service. The three different

department/agencies with an interest in the service are:

(BMVBS) Ministry for Traffic, Building and Urban Development, containing input from the central

government plus from the 16 federal States.

KBA (Kraftfahrbundesamt) – Collecting and evaluating statistics on all areas of mobility, including

driver testing, success rates etc

BAST Bundesanstalt fuer Strassenwesen ‐ Research and standards authority for mobility, from

road surfaces to driving licenses

TÜV do, however, organise an annual meeting of all stake‐holders to facilitate the exchange of

opinion, knowledge and experience. This involves all the TÜVs regions around the country, the army

(which also tests drivers during compulsory army service), driving instructors, driving examiners,

BMVBS, KBA and BAST.

National test fees are set and collected jointly by dVTÜV (the umbrella organisation for TÜVs) and

DEKRA. The theory test is currently €21 and the practical test varies from €80 – 150, depending on

vehicle class. There is no royalty payment/levy paid to the authorities (and it is felt that they do not

really incur any particular administrative costs related to driver testing).

In terms of quality control, BAST checks quality of current service delivery based on an analysis of test

results which are collated centrally. It was noted that a project is currently underway to improve

practical exam

http://www.kbashop.de/wcsstore/KBA/Attachment/Kostenlose_Produkte/fe_p_2009.pdf�


viii

The recording of test results is still largely a manual process at the present time, though some areas

are currently trialling the use of tablet type computer devices which send results to a central

computer and which also enables the examiner to print out a provisional license when candidate has

passed, and at the same time this also informs the central printing authority to issue final document

to the successful candidate. It is envisaged that this programme will be rolled out nationwide.

TUV reported that the Germany system is working well. Pass rates for candidates are very high – at

70 to 75%. This largely reflect the fact that test candidates have to complete a set number of hours

at “driving school” and only when the instructor feels that the candidate is ready, will he or she be

put forward to take the practical test. There are also reported to be no waiting times for tests in

Germany.

While State agencies appear to have little day to day involvement in the actual delivery of the test

service, there is a “holistic” or integrated approach to the service and different government

departments and agencies are involved in ensuring that the test itself if appropriate and that it is

working effectively.

Belgium

Belgium in another European country where driver testing in provided by private operators – but as

in Germany, the concession has been “endowed” on particular companies, rather than the subject of

a competitive tendering process. In the case of Belgium, the concession has been granted by Royal

Decree and dates back to the 1990s. In 1994, a number of private companies were granted a Royal

Decree to undertake periodical technical inspections (PTIs). This was followed in 1998 by a further

Decree which granted those companies recognized for PTI the right to also perform driving tests and

to operate driving test centres (DTCs). The Decree is not subject to any particular time frame.

Driver testing is organised on a regional basis with 10 different companies providing the service, at 32

different centres throughout the country.37

Belgian Driver Testing Centres – Provider, Location and Languages

AUTOMOBIEL ‐ CONTROLE EN TECHNIEK N.V, BRUXELLES. (FR/ NL)

KEURINGSBUREAU MOTORVOERTUIGEN N.V. OOSTENDE. (NL)

STUDIEBUREEL VOOR AUTOMOBIELTRANSPORT N.V. SINT‐DENIJS‐WESTREM. (NL)

BUREAU VOOR TECHNISCHE CONTROLE N.V. DEURNE. (NL)

AUTOVEILIGHEID N.V. ALKEN. (NL)

AUTO INSPECTION BUREAU VERITAS S.A. CHARLEROI. (FR)

CONTROLE TECHNIQUE AUTOMOBILE S.A. NAMUR. (FR)

AUTOSECURITE S.A. LIEGE. (FR)

KEURINGSBUREAU MOTORVOERTUIGEN N.V. ROESELARE. (NL)

BUREAU D'INSPECTION AUTOMOBILE S.A. TOURNAI. (FR)

KEURINGSBUREAU MOTORVOERTUIGEN N.V. BRUGGE. (NL)

37 It appears that other players are also involved for certain categories of vehicle. These include the public

administrations/companies for local transport of passengers (De Lijn, TEC, STIB‐MIVB for category D) and for “education of

people without work” (VDAB, FOREM, BRUFORM).


ix

KEURINGSBUREAU MOTORVOERTUIGEN N.V. WEVELGEM (NL)

STUDIEBUREEL VOOR AUTOMOBIELTRANSPORT N.V. EEKLO (NL)

STUDIEBUREEL VOOR AUTOMOBIELTRANSPORT N.V. BRAKEL (NL)

STUDIEBUREEL VOOR AUTOMOBIELTRANSPORT N.V. EREMBODEGEM (NL)

STUDIEBUREEL VOOR AUTOMOBIELTRANSPORT N.V. SINT‐NIKLAAS. (NL)

AUTO INSPECTIEBUREAU VERITAS N.V. ASSE (NL)

AUTO INSPECTION BUREAU VERITAS S.A. BRAINE‐LE‐COMTE. (FR)

AUTO INSPECTION BUREAU VERITAS. COUVIN. (FR)

SCHOUWINGSCENTRUM VOOR AUTO'S N.V. ANDERLECHT. (FR/ NL)

BUREAU VOOR TECHNISCHE CONTROLE N.V. KONTICH. (NL)

AUTOVEILIGHEID N.V. GEEL. (NL)

CENTRUM VOOR TECHNISCHE AUTOMOBIELINSPECTIE. HEVERLEE. (NL)

CONTROLE TECHNIQUE AUTOMOBILE S.A. OTTIGNIES LOUVAIN‐LA‐NEUVE. (FR)

CONTROLE TECHNIQUE AUTOMOBILE S.A. MARCHE‐EN‐FAMENNE. (FR)

AUTOSECURITE S.A. HUY. (FR)

AUTOSECURITE S.A. BASTOGNE. (FR)

AUTOSECURITE S.A. EUPEN. (D/FR)

BUREAU D'INSPECTION AUTOMOBILE S.P.R.L. LOBBES. (FR)

BUREAU D'INSPECTION AUTOMOBILE S.P.R.L. CUESMES. (FR)

AUTOSECURITE S.A. ARLON. (FR)

AUTOVEILIGHEID N.V. BREE (NL)

Source: Service Public Federale Mobilité et Transports38

While the DTCs are responsible for performing the theory and practical tests, the actual licenses are

issued by the local administration (cities, towns). The service is, however, under the direct

supervision of the Minister of Transport and his team of inspectors, who are also responsible for

inspecting the driving schools, the local administrations, etc. It was noted that inspection activities

have increased in recent years.

Driving test fees are set by the Royal Decree and historically have been very low. It is reported that

the fee levels do not cover the actual cost of test provision. However, as the private companies are

also performing vehicle inspection, they can use the surplus which they achieve on these activities to

cross‐subsidise their loss‐making driver testing services.

An important aspect of the organisation of driver testing in Belgium is the role of GOCA. Under the

1994 Royal Decree, recognised companies have an obligation to coordinate their actions. GOCA39 is

the professional organisation for the 10 recognised companies for PTI and driver testing. It is based in

Brussels and is heavily involved in all aspects of the service, from liaising with the FOD, the minister,

the Belgian Road Safety Institute (BIVV), the driving schools etc as well as devising the questions for

the theory test. It also has responsibility for ensuring the uniformity of the quality standards of its

member organisations.

It is reported that while driver licensing and the DTCs are a “federal responsibility”, education and

public transport have been regionalized (Flanders, Wallonia and Brussels) and discussions are

38 http://www.mobilit.fgov.be/fr/index.htm 39 www.goca.be


x

currently taking place about further regionalisation. For example, Flanders is in favour of further

regionalisation of “road safety”, including DTC and PTI. According to industry sources, “this means

that the actual situation is blocked” and that new developments, such as the implementation of new

European Directives, are limited to the strict minimum, to leave all the possibilities to the regions.

Ontario, Canada

The model for the delivery of driver testing in the province of Ontario in Canada also provides an

interesting case study as it involves the out‐sourcing of a service that had previously been provided

by the State. The model is also relevant as it has been the subject of extensive review as it received

the 2004 Gold Award for Service Delivery from the Canadian Council for Public Private Partnerships

(CCPPP) – and the information set out below is largely taken from the report accompanying that

award and from information provided by Serco, the private provider.

It is understood that the outsourcing decision followed a period of extensive evaluation and was

largely prompted by the failure of the existing system to keep pace with demand, with the result that

waiting times for tests reached 15 months in some areas and customer complaints started to

increase.

In the early 2000s, therefore, the Ontario Ministry of Transportation (MTO) commissioned a study of

three alternative service delivery options. The options were:

to continue to provide the service (public sector comparator);

to set up a not‐for‐profit corporation to deliver the service; or

to offer a 10‐year licence under a public‐private partnership (P3) to a private sector provider.

In developing the business case they looked at other jurisdictions and found that the few that had

outsourced driver examinations had done so to several independent operators. However, the MTO

felt that maintaining consistency of standards and managing relationships with multiple operators

was neither as effective nor as efficient as having a single operator.

It also believed that the private sector would be able to harness efficiencies in delivering driver

examination services. The potential benefits that MTO thought a private partner might be able to

capture through its capabilities included:

improved workforce scheduling, productivity and flexibility;

focused management expertise;

enhanced queue management; and

improved information technology.

Based on the analysis, MTO decided that the P3 model offered the best value. The private partner

would be responsible for all the key operational roles while MTO would retain responsibility for policy

and standards, fees to be charged, key information systems, quality assurance, compliance

monitoring and oversight.


xi

Delivering driver examination services through a public‐private partnership required a legislative

delegation of authority. In order to provide a private partner with the authority to conduct driver

examination services, the Government introduced enabling legislation, Bill 65: Improving Customer

Service for Road Users Act (2001). Under this Act, the Minister of Transportation may delegate the

responsibility to deliver all or some of the services of a road user program. Explicitly prohibited,

however, is any delegation of the power to make regulations or establish program standards or

policies.

Following a two‐stage competitive selection process the concession—the exclusive right to operate

driver examination services across Ontario—was awarded to Serco DES Inc., a wholly owned

subsidiary of the Serco Group plc which is one of world’s largest management services companies,

operating mainly in the UK and Europe. The service is delivered under the DriveTest brand and began

operations in September 2003.

The P3 Agreement

Serco established a special purpose company for the project, Serco DES Inc., whose sole business is

the provision of driver examination services in Ontario. The Delegation Agreement, which was signed

by MTO and Serco DES Inc., defines the roles and relationships of the partners and includes detailed

service requirements and implications for non‐performance.

Overall it establishes that:

Serco is granted the exclusive right to deliver all driver examination services across Ontario

and to collect and retain fees for a term of 10 years in return for a one‐time concession fee of

$114 million.

All testing is to government standards; all fees are fixed.

At the end of the 10‐year term there is an option to extend the agreement for two years, at

MTO’s discretion. In addition, either party can indicate its desire to begin negotiations for a

further ten years.

Under the Agreement, Serco is responsible for the day‐to‐day management and operation of

Ontario’s driver examination services. More specifically, Serco:

• provides knowledge and driver examinations according to standards and performance levels

specified in the Delegation Agreement;

• assumed (by sublease) or replacement Driver Examination Centres and 37 remote service

points in locations determined by the Government;

• was granted the authority to collect and retain fees for the delivery of specified driver

• examination services;

• provided MTO with an (upfront) concession fee of $114 million; and

• committed to hand back all property to MTO in good condition at the end of the term,

Under the Agreement, MTO retains control over all government policies affecting the delivery of

driver examination services. It will:


xii

• continue to set road user policies in Ontario over matters that directly and indirectly affect

the delivery of driver examination services;

• establish and maintain the legal framework and certain IT systems and data;

• provide for its own quality assurance, monitoring and oversight functions; and provide

training curriculum to Serco.

Service standards formed a critical part of the agreement. An overriding provision is that all testing

must be conducted according to government standards, policies and procedures, as set out in the

Delegation Agreement. Furthermore, MTO approves the road tests, routes to be used, and training

personnel and curriculum.

Recognizing their importance, the Delegation Agreement prescribes almost one hundred

performance‐based service standards. These are generally output‐ not input‐based standards.

Some of the primary performance measures include:

• Wait times ‐ Serco must provide a road test within 42 days (6 weeks) of an applicant coming

forward and requesting one anywhere in Ontario.

• Customer service ‐ Serco must provide service over the counter within 20 minutes of a client

coming into the driver examination centre.

• Fail rates ‐ Examiners must stay within a prescribed range of pass/fail rates. This provision is

intended to prevent Serco from enhancing its revenue by increasing the number of repeat

tests required.

Other standards ensure that Serco is consistent with service standards in the public sector over items

such as:

• dispute resolution and dispute handling;

• privacy requirements;

• staffing qualifications including criminal reference check; and provision of services in French

in those communities designated in the French Language Services Act.

As well as having prescriptive performance standards, a significant portion of the integrity of the

licensing system rests in the secure capture and storage of accurate driver licensing information.

Associated with this is the issue of maintaining the confidentiality of driver information and

preventing access by unauthorized people. MTO had developed its own information systems for

driver licensing. Under the Delegation Agreement, Serco was provided with the use of MTO’s existing

hardware and software, with MTO providing the specified maintenance services on these systems. To

ensure confidentiality, Serco is provided with specific screens that it can use to input data and send to

MTO for processing, but has no access to the MTO databases. In addition, there are strict

confidentiality provisions in the Delegation Agreement.

Serco must meet or exceed the performance levels set out in the Delegation Agreement, and failure

to do so results in deficiency payments and/or a cure plan. Protracted failures run the risk of

termination.


xiii

MTO had planned to have an independent third party audit Serco’s compliance with the performance

standards but ultimately, decided to perform this function in‐house. Each month, ministry staff visit

between 35 and 55 different DriveTest locations. Each DriveTest Centre is audited up to 10 times per

year. Any centre not visited in the current month becomes a priority for a visit the following month.

Serco pays $200,000 per month into a special account to cover this oversight function regardless of

who performs the audit.

Since all transactions are captured in the driver examination information systems and databases,

monitoring tools largely focus on diagnostic reporting (such as deviation from the pass/fail rate) using

data in those information systems. In addition, MTO use “mystery shoppers” and, if required, the

services of a specialized forensic auditor.

Serco receives its DriveTest revenue from several sources: road test fees, a driver’s first licence, and

ancillary revenues. The road test and licence fees are estimated to generate approximately $60

million in annual revenues.

Serco can collect and retain all fees related to driver examinations. The fee rates that Serco can retain

are fixed in the Delegation Agreement for the 10‐year term regardless of inflation or whether the

government later raises the actual rates. However, Serco is compensated if it incurs additional costs

as a result of actions by the government, such as changes to the standard etc.

From the point of view of the public interest, it was felt to be important to fix the fee rates since

Serco has been granted a monopoly in providing driver examination services. The fees would not,

therefore, be subject to competitive pressures.

Serco also keeps the fee charged a new driver the first time he or she is issued a licence. The fees for

subsequent licence renewals are retained by MTO. In addition, Serco is provided with the

opportunity to generate ancillary revenue from the sale of certain other products and services in

accordance with provisions in the Delegation Agreement. It may also derive additional revenues from

productivity improvements over and above those incorporated into its concession fee.

The Agreement also addressed possible risks that might arise. A major risk for MTO is that the

prescribed standards are not met and that road safety is ultimately compromised. It has managed this

risk through highly prescriptive performance outcomes. Other risks retained by MTO are:

• Policy risk – MTO must compensate Serco for changes to policy or to service requirements

that result in a higher service delivery cost.

• Political risk – MTO must compensate Serco for termination due to convenience.

Most of the operating risks have been transferred to Serco. It bears the risk of delivery and has

significant capital at stake. These risks include:

• Financial – that it can raise the financing, cover costs and debt payments, and earn a return.

• Volume – that the number of examinations and other services may be more or less than

expected due to external factors, such as demographic changes as a result of federal

immigration policies (the risk of provincial policy changes is borne by MTO).

• Operating – that it can provide the services at the standards required.


xiv

• Economic – that inflation does not increase given the fees are fixed and not scheduled to rise

during the 10‐year term.

• Labour – that it can employ and train suitable and sufficient staff.

The partners also developed protocols for how to respond to complaints. Since between one‐third

and one‐half of the applicants who take a test do not pass, the complaint level is likely to be high with

some applicants blaming their failure on the testing process. In this case, the complaint is forwarded

to Serco who investigates and takes whatever steps are necessary.

It was also a requirement of the Delegation Agreement that Serco develop a new brand (“DriveTest”)

that would reinvigorate the image of the driver examination centres, project good customer service,

and distinguish DriveTest services from other similar services provided by MTO, such as vehicle

licensing.

There were approximately 750 staff working in driver examination services at MTO prior to the

transition. Almost all were members of the Ontario Public Service Employees Union (OPSEU) and a

few belonged to the Association of Management, Administrative and Professional Crown Employees

of Ontario (AMAPCEO). The unions, particularly OPSEU, were philosophically opposed to the public‐

private partnership. Under the collective agreements MTO was obligated to disclose any and all

discussions and proposals to outsource the work. MTO went beyond its contractual obligations and

kept up an open dialogue with employees during the transaction process.

The collective agreements for each union, though different, both contained provisions in the event of

an outsourcing of the work of their members. The winning proponent had to incorporate these

provisions in its bid. In general:

• If an employee chose to opt in, that is to move to the new employer, he or she maintained

their seniority and was entitled to at least 85% of the salary they received with MTO.

• If an employee chose to opt out, he or she was entitled to receive an enhanced severance

package. They could subsequently apply to work with Serco.

In this situation, all but about 2% of the employees chose to opt out and take the enhanced

severance package. Many then immediately applied for employment with Serco. Since driver

examiner skills are specialized and few people outside MTO would be qualified to start immediately,

many were subsequently hired by Serco. Thus, though few staff were directly transitioned to the new

employer, many ended up working with Serco.

Serco currently employs approximately 600 people at 55 examination centres and 38 “travel points”

throughout Ontario. In total, Serco administers almost 2 million tests per year for the MTO, including:

• 600,000 Vision Exams

• 600,000 Written Knowledge Exams

• 350,000 G1 Road Tests

• 275,000 G2 Road Tests

• 40,000 Truck, Bus and School Bus Road Tests


xv

Specifically in relation to road tests, Serco employs 250 technical FTE’s and 50 Admin FTEs to cover

650 road tests a year.

The driver examination centres are staffed with a mix of full‐time and part‐time employees in order

to meet demand that fluctuates daily, weekly and seasonally. Serco has a lower base staffing level

than MTO as a result of factors such as efficiency improvements—for example having the flexibility to

move examiners to different centres within a region to meet varying demand levels—and the fact

that the additional personnel hired to deal with driving test backlogs were no longer needed.

According to the CCPPP, under the P3 Agreement the MTO has achieved its objectives. It has

improved customer service and captured financial benefits for Ontario taxpayers. At the same time, it

has maintained government control over policy, test standards and quality, and continues to ensure

that drivers’ capabilities contribute to road safety.

Customer service has been significantly improved since Serco began operations in September 2003.

Serco reduced wait times for a Road Test from an average of 6 months under MTO to an

average of 3 weeks. Contracted maximum is 6 weeks.

Hours of service have been expanded in many locations.

Measured Customer Satisfaction has increased from 77% under MTO to 91% under Serco.

The improved customer service has been achieved by reengineering the organizational structure and

processes to improve productivity and by leveraging technology. Some of the specific changes Serco

has made/is in process of making include:

• introducing technology to streamline appointment scheduling and allow applicants to book

tests online, replacing examiners’ clipboards with handheld computers, and taking advantage

of new communications channels such as the Internet and interactive voice response;

• introducing longer opening hours during extended daylight periods from April to October, as

well as expanded weekend opening hours for selected Test Centres in major urban areas.

• employees within one Test Centre are assigned to work out of another Test Centre as

required to meet workload fluctuations.

• the use of staff overtime and “stand‐by” Road Tests to manage fluctuations in demand or

unexpected changes (e.g. “no‐shows”).

• flexibility in scheduling staff to ensure that capacity meets demand on an hourly, daily,

weekly and seasonal basis. For example, Serco offers employees longer work‐weeks during

peak periods in exchange for additional time‐off during slower periods.

• Increases in the length of the full‐time work week from the current 36.25 under MTO to 37.5

hours under Serco. This is typical for the service sector in Ontario and has increased the

productive capacity of a Road Test Examiner by 2 or 3 tests per day. This translates to an

additional total capacity of over 50,000 Road Tests per year.

• the cross‐training of Road Test Examiners and Customer Service Agents to perform the entire

range of Services. This approach is particularly effective in high volume Test Centres where

seasonal demand for Road Tests fluctuates differently than the demand for other services. It

also supports the delivery of Services in low volume Test Centres where coverage may be

required for vacation, sickness and training.


xvi

• the use sophisticated tools to monitor the volume of appointments being booked to

anticipate and respond to spikes or drops in workload.

• introducing overall cultural change by providing employees with more accountability, more

decision‐making ability and better tools so they have the opportunity to be more effective.

One of the government’s objectives was to ensure that the taxpayer received value from the

partnership whilst maintain and enhancing driver test standards – and it would appear that the P3

Agreement is achieving that objective. According to the Ministry of Transportation40, for example,

“Ontario roads consistently rank among the safest in North America and a large part of the credit

goes to our strong driver exam system”.

In addition, the way the agreement was structured, and in particular the financial arrangements

enabled MTO to receive a concession fee of $114 million upfront rather than spread over ten years.

In terms of cost savings, MTO did include a public sector comparator in its business case analysis and

had concluded that private sector delivery provided the best value.

For Serco, it expects to earn a fair return on its investment from revenues from the fees which are

expected to be $60 million per year, or $600 million over the life of the agreement, as well as any

additional benefits from operational efficiencies and other related business it develops.

Apart from being the first time that driver testing has been outsourced to a single operator across an

entire jurisdiction, the business model of this public‐private partnership incorporates several

innovative features. To begin with, it is believed to be the first time in Canada that a government has

converted a fee‐based service into cash. Secondly, the agreement enabled Serco to estimate the

value of the agreement over ten years including any improvements it could make, and to pay this

total value to MTO as an upfront concession fee. The risk and returns are allocated differently: Serco

has assumed the risk of delivery and will earn its return over ten years while MTO receives its value

immediately and on a risk free basis.

Alberta, Canada

The driver test system in Alberta has also been out‐sourced to private operators, but in contrast to

the arrangement in Ontario, the vehicle registrations, driver licensing and testing are handled through

registry agents and licensed driver examiners, rather than through a single concession holder.

According to the Alberta transport department41 registry agents are a network of community‐based

service centres, offering one‐stop shopping for a wide range of registration, information, and

licensing services on behalf of the Government of Alberta. Services provided include motor vehicle

registration, driver licensing and testing, personal property (lien) searches and registrations, land title

searches, corporate registry searches, and vital statistics searches. “Road testing services are

provided through the registry agent network. Road tests are conducted by licensed driver examiners,

with scheduling arranged by the registry agents”.

40 http://www.mto.gov.on.ca/english/dandv/driver/driver-exam.shtml 41 http://www.transportation.alberta.ca/543.htm


xvii

Road test fees are determined jointly by the registry agent and driver examiner, and can vary by

location. The government receives a fixed amount of $5 per test, with the agent and examiner

portions added to this.

British Colombia, Canada

The Insurance Corporation of British Columbia42 is a provincial Crown corporation established in 1973

to provide universal auto insurance to B.C. motorists. It is also responsible for driver licensing, and

vehicle licensing and registration.

New Zealand43

The system in New Zealand also has a role for private licensing agents, who are authorised by the NZ

Transport Agency. Practical driving tests can be booked via the following agents:

The Automobile Association (AA) ‐ most AA offices

Vehicle Testing New Zealand (VTNZ) ‐ selected VTNZ stations

Vehicle Inspection New Zealand (VINZ) ‐ Auckland, Lower Hutt, Christchurch and Dunedin

only

AA Driver and Vehicle licensing agent can handle all Driver and Vehicle Licensing requirements

including International Driving Permits (IDP's).

VTNZ as we know it today started its life in 1994 as a State Owned Enterprise following a review of

the Ministry of Transport. VTNZ was privatised in 1999 and the Motor Trade Association purchased

the company. There are now 85 VTNZ testing stations and nearly all carry out Warrant of Fitness

inspections. Many VTNZ testing stations can also issue or renew Driver Licences.

The prices for all licences are set by the New Zealand Government, via the NZ Transport Agency.

Only testing officers employed or contracted by the NZ Transport Agency, our testing agent ‐ New

Zealand Driver Licensing (1998) Ltd ‐ or the NZ Defence Force can conduct practical driving tests.

These testing officers must have a current testing officer (O) endorsement on their driver licence.

42 http://www.icbc.com/driver‐licensing 43 http://www.nzta.govt.nz/licence/getting/where‐to‐go/index.html

http://www.aa.co.nz/Location/Pages/result.aspx�

http://www.vtnz.co.nz/search�

http://vinz.co.nz/locations.shtml�


xviii

Appendix 2: DKM’s Population Model Q1 2011 – Underlying

Assumptions44

DKM have selected three scenarios which in our view form realistic lower and upper boundaries

around a most likely base case for the possible demographic outcomes for Ireland to 2021.

M2F2 provides an optimistic outlook

M3F2 is our base case scenario

M4F2 is the low growth scenario

Below, we set out briefly the key assumptions underlying these projections.

Fertility

F2: TFR to remain at 2009 rates of 2.1 for the lifetime of the projections. All 3 scenarios used in the

model are based on the higher fertility assumption, F2.

Mortality45

Mortality rates are assumed to decrease, which will result in gains in life expectancy at birth from

76.7 years in 2005 to 86.5 years in 2041 for males, and

81.5 years in 2005 to 88.2 years in 2041 for females.

Migration

For all three scenarios we assume that 2011 will see an intensification of outflows to 45,00046,

bringing annual average net migration over the period 2006‐2011 to 4,000.

All three scenarios foresee a strengthening of outflows over the period 2011‐2016.

The most optimistic outlook, M2, sees net inflows returning in the 2016‐2021 period,

The base scenario, M3, predicts zero net migration between 2016 and 2021,

M4, the pessimistic outlook, is for emigration to continue to 2021.

DKM National net migration assumptions, average annual flows

DKM M2 DKM M3 DKM M4

2006‐2011 +4,000 +4,000 +4,000

2011‐2016 ‐10,000 ‐25,000 ‐35,000

2016‐2021 +15,000 0 ‐15,000

Age distribution of migration

44 Due to the rapidly changing economic environment, DKM’s demographic assumptions are updated on a quarterly basis. 45 Consistent with CSO (30/04/2008), Population and Labour Force Projections 2011‐2041 46 ESRI QEC predicts net emigration of 50,000 during 2011.


xix

The age distribution of those emigrating is based on historical trends prevalent during periods of

high emigration. It is dramatically skewed towards the younger age groups as the following table

shows:

Age distribution of total migration flows, M3

Males Females

0 ‐ 14 ‐3% ‐3%

15 ‐ 24 62% 56%

25 ‐ 44 7% ‐4%

45 ‐ 64 ‐4% ‐3%

65+ ‐4% ‐4%

Total 57% 43%

Source: CSO Population and Migration Estimates(1987‐1995)


xx

Appendix 3: Letter to and Request for Information from Operators

Dear

As we discussed recently, yesterday we had the mid‐point Project Steering Group Meeting with the Department

to discuss our Phase one findings and agree our approach to Phase 2.

We shared with the Department the high level discussions we have had with you to date but more importantly

we discussed setting parameters for the next phase of our study.

Ideally, and in line with guidance established under the Croke Park Agreement [ specific reference] we now aim

to complete two strands of study:

(5) to further refine and verify the RSA’s projections for future self‐sufficiency and retention of the DTS but

implementing the various efficiency projects, some initiated under Croke Park, others ongoing; and (6) to develop a generic but sufficiently indicative shadow bid model to represent the comparative costs

that might arise in an outsourced scenario.

Clearly it is under point two that we will be seeking voluntary contributions from you and other interested and

suitably experienced and competent organisations in the private sector.

We have mentioned previously that we understand confidentiality of commercial proposals is paramount. The

Department is also sympathetic to this position but at the same time must make every effort to ensure

openness and transparency in dealing with RSA, employees, unions and other stakeholders in presenting the

ultimate findings which may become part of a decision making process regarding the future delivery of the DTS.

We suggested to the Steering Group a potential solution which may meet your concerns but also lend the

Department the necessary disclosure of a proper and independent research to support recommendations. In

essence what we are suggesting is the following:

invite a number (ideally 3 or more) of interested parties to engage in a brief period of dialogue to understand the outline specification sought

issue a common high‐level specification to all interested parties

allow a period for preparation of responses receive responses and harmonise outcomes in preparing a hybrid or average model to represent a nominal outsourced cost model

the individual responses will be held by FPM/DKM rather than the Department who shall be presented only with the ‘blended’ data.

Whilst recognising the limitations of this approach, it is hoped it should provide sufficient information to enable

the Department to engage meaningfully in a discussion around the relative merits and costs of the outsourcing

approach in coming to a decision.

Of course any information provided would be recognised to be done under goodwill and cannot be held to be

binding in any possible future tendering process. We would stress the fact that any information provided would

be used only to inform the research into the appraisal of possible options for the delivery of driver testing and

NOT as part of a tender process.

Moreover, I would emphasise that at no time during the dialogue phase would any data or information from

one operator be shared with another; we will keep the identity and indeed number of respondents confidential

from one another and ideally not have them referred to in the final report except by oblique reference to a

number of global and national players in the market.


xxi

In this way we trust that your commercial decisions will not be recorded in any documentary fashion that would

allow their identification, nor would your estimates of potential costs be ranked or ‘selected’, but instead a

blend of data received would be created to provide an anonymised ‘typical’ cost.

Your concerns in the regard might be that you feel your organisation is particularly well placed to be

competitive and we will allow for this by preparing sensitivities around the results to ensure we capture the full

range of possible outcomes in any potential future tender process. These sensitivities will be at predetermined

levels and will be clearly stated NOT to relate to actual data provided.

We await further clarification from the Department shortly as to their preference around the level of

confidentiality that can be offered and would seek your initial views on the approach outlined above so that we

can relay to the Department the likelihood of participation or highlight any particular concerns about so doing.

In terms of timescale, the Department is keen to bring the process to a conclusion as soon as possible and we

might be in a position to issue a shadow terms of reference/ output specification within the next week,

thereafter seeking your response within a week to ten days.

Again your views on this would be helpful.

In terms of information and format sought, for the purposes of this study, we are mainly interested in the

estimated costs backed by only outline technical proposals and confirmation that the resources indicated and

costed would be reasonably representative of a potential future tender proposal. We are NOT seeking detailed

technical proposals as such will not form part of our study. We will, however, have to set out some specific

requirements, to ensure conformity of approach from participating organisations’ responses. These could

include, for example:

confirmation of understanding of the terms of reference

confirmation of acceptance of key parameters and assumptions as will be provided e.g. demand forecasts, customer service standards (e.g. max. waiting times, call centre performance etc), estates provision, staff qualifications etc

indicative and costed staffing structures

indicative estates management proposals (overview, not site‐by‐site)

indicative ICT solution proposed (overview, not full technical spec)

NO supplementary or commercial information or methodologies are required

no technical methodology regarding conduct of the test or system architectures is required

the main outcome of significance to the study will be the cost per test to the RSA for provision of the service (this to be shown net and gross for VAT).

We trust this is of interest to you and would welcome your views on the approached proposed.

Kind regards


xxii

The following table sets out the headline assumptions and parameters we wish you to follow in the exercise.

These are necessarily high‐level, imperfect and you may feel constrain your ‘blank‐page approach.

We have requested a few sensitivities to allow you to demonstrate where you feel your operating model may

deliver certain benefits over that currently delivered by RSA.

In addition to these, you may submit a further sensitivity or variant which you feel provides your optimum

solution in terms of cost.

Factor Standard Assumption Sensitivity Disclosure

Contract duration 10 years 7 years Please set out

assumptions regarding

technology refresh,

estates and staffing

retention

Demand

Please adopt 150,000 test p.a.

as the main projection – of

which car tests are expected

to be approx 90%,

motorcycles 2.5%, HGV 5%,

truck&trailer 1.5%, misc 1%)

To provide a range of

sensitivities above and

below the main

assumption, please can

you model for total tests

conducted p.a.:

100K, 125K, 175K 200K

Staffing:

Technical Assume no staff TUPE’d from

RSA, i.e. all new employees

(a) assume all staff

transfer under TUPE

(details of current staff

attached)

Please set out numbers

of staff , possible role and

organisational structure

Admin/support Assume no staff TUPE’d from

RSA, i.e. all new employees

(a) assume all staff

transfer under TUPE

(details of current staff

attached)

Please set out numbers

of staff, possible role and

organisational structure

Working hours etc

Assume your preferred

approach to delivering the

service

(a) Assume current 8

test/day/tester;

Weekdays only

Set out your assumptions

for preferred approach

Multi‐skilled Assume number of testers

who can conduct the full

range of tests e.g. motorcycle,

HGV, PSVs etc

‐ Set out your proposals for

extent of multi‐skilling,

training required etc

Tester Qualifications

Assume all examiners must be

FETAC 6/HETAC level trained

‐ Demonstrate outline

proposals to ensure


xxiii

and qualified consistent quality of

examiners upon

appointment

Estates: Assume test available from as

many locations as required to

ensure 90% of population no

further than 35 miles from a

centre. Assume the following: 9 all‐category test

centres (with appropriate off‐round compound)

7 car and motorcycle test centres (with appropriate off‐round compound)

8 car only test centres

These to be geographically spread according to access needs

(a) based on current

number of locations (see

RSA website)

Please set out suggested

approach to provision of

estate

Fee Fees to the public to be

maintained at current levels

(see RSA website)

None Confirm no change in end user fees required.

Set out mechanics of charging – any profit share/ royalty or other mechanism envisaged.

Explain VAT implications of supplier charging for this service

Customer Service:

Max waiting times

10 weeks max Confirm capacity to meet

Online booking Real‐time booking for

candidates

Confirm technology

Self‐scheduling Candidate ability to select

appointment and make

subsequent changes (within

reason)

Confirm technology

Help desk 97% of calls to be answered ‐ Confirm staffing and

technology to meet


xxiv

standard

Technology

Ability to capture test results electronically and analyse results in real‐time

Detailed information required

to monitor results by

examiner, location. Also

capable of providing

confirmation of duration of

test and routes.

‐ Confirm technology is deliverable and has been fully costed.

Highlight how connectivity with RSA systems could be addressed – explain tech

Test Standards and

Quality Control

Maintain highest standards of

delivery, consistency and

transparency

Assume that test routes will

need to be agreed with RSA

Assume that RSA will require

regular checks on tester

standards, test quality etc

Innovative approaches

can be considered

Explain approach to

ensuring all tests

conducted to consistent

standard regardless of

tester, location or

conditions

Other Issues Note that the RSA has

planned a number of changes

to the test system in coming

years. In addition, EU

requirements are changing –

any system will need to be

flexible enough to cater for

these changes

option for the future delivery of driver in - dttas.ie · pdf fileoption appraisal for the...

Documents