The State agency that is managing the Digital Hub development has extended its executive services contract with Magahy & Co until the end of 2004.

The board of Digital Hub Development Agency (DHDA) recently agreed the one-year contract extension, which will cut in half the monthly services fee that it pays to Magahy.

The company, which holds several other high-profile State contracts, will be paid €70,000 per month, compared to the €140,000 monthly fee agreed for the previous three-year period.

The lower monthly fee reflects the fact that some of the functions previously performed by Magahy will be taken on by DHDA staff.

Over the next few weeks, the agency will formally announce the appointment of new directors for finance and marketing and strategy. DHDA is also proposing to appoint an operations director.

The Digital Hub is a €250 million public-private partnership, which proposes to establish a major technology park in the Liberties area of Dublin. It is one of three major State projects that Magahy has clinched in the past four years.

The firm is also managing a €320 million redevelopment of the Mater Hospital and is undertaking work for Campus Stadium Ireland Ltd - the agency that proposes to build a national stadium at Abbotstown.

The management fees paid to Magahy for work completed on the Abbotstown and Digital Hub projects became an issue of concern for officials at the Department of Finance.

Initially, it was proposed that fees paid for work completed on both projects would be calculated on a percentage of the final cost of the projects. This was later amended to a monthly fee following concern that the original proposal could expose the State to a major financial liability.

The extension to DHDA's services contract with Magahy was not put out to tender because the agency regarded it as an extension to the existing contract rather than an entirely new contract award.

But Mr Philip Flynn, DHDA chief executive, said yesterday in an interview with The Irish Times that, if any executive services were required by the agency after December 2004, these services would be put out to tender.

He also confirmed that DHDA had negotiated an overdraft to fund its operating costs until it reached break-even.

Mr Flynn said the agency was still using cash reserves provided by the Exchequer but would begin drawing down from its overdraft facility within a few months.

Under the legislation that established DHDA as a State agency, it can raise loans worth €10 million to fund its operations. The borrowings can be used to keep it afloat until the development of the Digital Hub is complete.

By the time of completion, it is hoped that the State body will be self-financing.

The Digital Hub is a major urban development project, which plans to create a hub where digital media firms can locate and form a network.

The State has already invested €120 million in the project and private funding worth €130 million is being sought through a competitive tender. This money will be used to carry out further development on the site.

DHDA is the State agency responsible for managing the project and organising the competitive bid process, which should be completed by April.