The secretary general of the Department of Education and Science has said that the Government had "no capacity" to force religious orders to contribute to the redress scheme.
Mr John Dennehy also criticised the Comptroller and Auditor General's (CAG) report as failing to "adequately deal with the alternatives to participation by the congregations in the redress scheme".
Mr Dennehy also rejected suggestions that the Attorney General's office was not sufficiently involved in negotiations.
"I am satisfied that appropriate legal advice was made available to the Minister and the Department by the [Attorney General] at all key stages of the process," he told the Public Accounts Committee.
Alternatives to the indemnity deal would have been likely to fail. If the cases had gone to the High Court, many would have failed because of the lapse of time.
Plaintiffs who took successful cases could have insisted on the State making the full awards. The State would then have had to pursue the religious orders through the courts.
"Because much of the congregations' property is tied up in trusts, there would have been serious difficulties in forcing them to pay compensation," he said.
He also questioned the potential liability of up to €1 billion estimated by the CAG, in that the average compensation payments were likely to be lower than that in the CAG report.
He also cautioned against the use by the CAG of freedom-of-information requests for personal information from former residents of industrial schools.
The Comptroller, Mr John Purcell, disagreed, however, and told PAC members that 70 per cent of the requests were made through solicitors' offices.
Mr Dennehy denied suggestions that the Attorney General's Office was excluded from two key meetings over fears that details of discussions would be leaked to the media.
Mr Dennehy was the only official who accompanied his minister, Dr Michael Woods, to the negotiations with the religious orders in November 2001 and January 2002 to discuss their contribution to the redress scheme.
He said the negotiations had reached a stalemate in October, and Dr Woods had made a ministerial decision to intervene and personally conduct them.
At the meetings the minister refused to discuss the indemnity clause, and therefore there was no need for a legal expert to attend on behalf of the State, as they were policy discussions.
"Neither the minister nor the government were bound or tied by anything discussed at those meetings," he said.
Mr Dennehy said there was nothing sinister in the non-attendance at two further meetings in March and April by staff from the Attorney General's Office.
They were unable to attend because they had yet to be officially briefed by Dr Woods.
Mr Dennehy also said the Government had now agreed in principle to accept 34 out of the 82 properties, worth €22.6 million.