Government departments have been urged to be more business savvy when they venture out into the private sector to buy property on behalf of the taxpayer.

After Justice spent €40m four years ago buying a site for the now abandoned new prison on the Thornton Hall site in north Co Dublin, the Department of Finance is now insisting that, in future, departments should use agents or intermediaries to try and hide the fact that the buyer is the state.

"The acquisition of property should be pursued on a commercial basis including the use of intermediaries to ensure confidentiality in high-value cases, since sellers to the state in such situations tend to consider they are in a strong negotiating position and look for higher prices", the department warned in a memo sent to Colm McCarthy's An Bord Snip Nua.

In January 2005 then justice minister Michael McDowell paid €30m for a 150-acre site in Swords, Co Dublin, for the new Thornton Hall prison.

The price paid per acre was far higher than prices secured in other land deals in the area at the same time, prompting criticism that the taxpayer was fleeced by the vendor who 'saw the state coming'. The Department of Justice spent a further €11m preparing the site, bringing the pre-construction costs to €41m.

Last May, justice minister Dermot Ahern postponed the €400m project. Ahern said negotiations with the consortium Leargas, which was to build, maintain and finance the new super prison, had broken down because the costs were "not affordable" in the current climate.

But Ahern said the state was holding on to the €40m site and promised the prison would be built in the future.

The Department of Finance pointed out that the state property arm, the OPW, and the HSE had advertised publicly "on occasion" for land.

"This might be justified in cases where there is a large supply of suitable accommodation with many alternatives, since, in these cases, sellers lack monopoly power and knowledge of an interest by the state would not place the same upward pressure on prices," said the department.