State investments need clearer cost-benefit analysis

The Confederation of Icelandic Enterprise and the Iceland Chamber of Commerce (the Associations) have reviewed the draft bill on state investments, published on the Government Consultation Portal on 10 July (case no. S-119/2026). The bill involves a comprehensive review of the current arrangements for public works, aimed at ensuring that consistent procedures and professional project governance apply across all of the state's larger investments.

The Associations welcome the bill and consider it to reflect the particular position that state investments occupy in public operations. Such investments generally entail extensive commitments and can have wide-ranging and lasting effects on public finances and public services. The scope and complexity of public investments has increased in recent years, alongside growing demands for transparency, preparation and clear prioritisation in the allocation of public funds. It is therefore important that the legal framework for public investments provides a clear and coherent structure for the field.

The Associations emphasise that the framework proposed in the bill should above all serve to improve decision-making, strengthen oversight and promote more efficient use of public funds. It is important that implementation of the act does not lead to increased administration, but that stricter requirements instead apply to those projects where scope and risk justify more thorough preparation and review. In this regard, the Associations make the following comments.

Cost-benefit analysis should become a clearer part of the process

The Associations support the bill's emphasis on decisions about state investments being based on an assessment of the cost, benefit and effects of the various options over their lifetime. Article 2 of the draft bill also defines efficiency as one of the core values underpinning the draft, and states that the options chosen should be those that yield the greatest social benefit, having regard to cost.

Despite this, Article 7 of the draft bill does not set a clear requirement for cost-benefit analysis at the individual stages of the process. The Associations consider it appropriate to sharpen this point in the proposed legislation and to introduce a clear requirement that larger and higher-risk investments undergo cost-benefit analysis before a decision on implementation is taken.

Such an assessment should seek to answer not only whether a given investment yields benefits in excess of its costs, but also whether it is the most efficient way of achieving the stated objectives, and should include a comparison with other possible uses of the funds.

Options analysis should cover different ways of achieving the same objective

The draft bill provides for a separate options analysis in which the options for achieving an investment's objectives are compared. The Associations consider it important that the concept be interpreted broadly, and that the analysis not be confined to different versions of an investment that has already been decided upon.

In the Associations' view, it would be appropriate to assess whether a state investment is needed at all and whether the same objective can be achieved more efficiently, for example through the purchase of services, tendering, leasing or cooperation with private parties. This would make it possible to find the most efficient way of meeting a given need, rather than starting from the assumption that a particular project will go ahead.

Improved administration through project work rather than a heavier administrative layer

The Associations agree that increased professional oversight of the state's largest investments can deliver significant benefits. However, care must be taken that the new legal framework does not lead to unnecessarily complex processes, an increase in administrative layers, or higher costs in preparing projects without a corresponding benefit. The draft bill provides for greater involvement by the Ministry of Finance and Economic Affairs, and also allows the minister to entrust a state entity or a special unit operating under the minister's responsibility with a central role in the preparation and implementation of investments. The minister may also set a special fee schedule for services provided.

The Associations note the statement in the explanatory memorandum that implementation of the bill will require additional staff and higher operating costs, without a detailed cost-benefit assessment of the bill's effects having been carried out. It is important that the same efficiency requirement applies to the legal framework itself as to the projects covered by the draft bill. Administrative costs should therefore be assessed, and requirements for preparation and review should be brought into proportion with the scope and risk of projects, before the bill proceeds to parliamentary consideration.

The Associations reiterate their generally positive view of the draft bill and the comprehensive review it represents. Careful preparation, a realistic comparison of options and systematic follow-up are important preconditions for ensuring that the Treasury's limited funds are used where they deliver the greatest benefit. Taking the above comments into account, the Associations consider that the draft bill could be an important step towards greater oversight and more efficient use of public funds.

This article was automatically translated from the Icelandic original.