Mr. Philip Crampton:

I thank the Vice Chairman and the members of the Oireachtas Joint Committee on Jobs, Enterprise and Innovation for taking the time to investigate this very important subject. The construction industry in the Ireland has gone through a dramatic period of decline over the past six years. Activity in the industry had been valued at €38 billion in 2006. However, that activity has experienced significant levels of decline in the period since. In six years the value of activity in the sector has experienced a drop of approximately €30 billion. The decline in activity has had major implications for our industry. There has been an enormous decline in the level of direct construction employment. The peak of direct construction employment was reached in second quarter of 2007 when a total of 273,900 people were working in the industry. The most recent figures for direct construction employment are from the last quarter of 2012, when the total level of employment was recorded as being 103,200.

According to those figures the level of direct construction employment has declined by 170,700. We estimate that when indirect employment and ancillary jobs are added in, the decline in the construction industry has resulted in a loss of approximately 250,000 jobs.

It is also worth noting that according to Government figures, one in four persons on the live register, or 109,000 persons, is a former construction worker. The severely decreased level of activity in the sector has made the business environment extremely difficult for Irish construction companies. Many have been forced out of business, with as many as 421 and 415 construction companies becoming insolvent in 2011 and 2012, respectively. As of 1 April 2013, a further 90 construction companies had become insolvent. In the face of such difficult conditions, the competition for work has become fierce. To stay afloat, companies need to secure work. Otherwise, they will have no income to meet the continuing expenditures of their businesses. Across the industry, company cash flows and reserves have been used up.

Tender prices in the industry are ever reducing as construction companies do everything they can to ensure they secure a project. In an environment where there is a race to the lowest possible tender price, which is what is happening in the construction industry, some people look to ways in which they can gain an edge on their competition. While this can sometimes involve bringing in more efficient and effective building or business practices, there is a considerable belief in the construction industry that a number of construction companies and single construction operatives are turning to the black economy.
What constitutes black economy activity in the construction sector? Simply put, it is work that is carried out outside the scope of the relevant regulations facing the industry and with no regard to building standards, revenue compliance or health and safety standards. The most obvious examples of this type of activity involve construction work that is not tax compliant and-or carried out by individuals who are receiving jobseeker's benefit simultaneously. Unfortunately, there is a lot of anecdotal evidence to suggest that some construction companies and construction operatives are not fully meeting their tax obligations. There is a belief that the VAT on particular jobs is not being charged to clients and that in some cases taxes are being applied to the project-client but once this has been paid to the construction operator the relevant payments are not being passed on to Revenue. There is also a belief among construction companies that some of their competitors are paying their workers in cash, outside of the tax system. These examples of black economy activity are sometimes used to subsidise the work that is being carried out, allowing the construction operative or construction company to provide a lower tender price.

The misuse of social welfare payments is also a serious problem for the construction sector. A large portion of construction employment is temporary in nature. Construction workers may be employed only for the duration of a particular project. In some cases, this can be long-term but in others might only be for a few weeks or days. The uncertainty of the duration of employment makes it more difficult to police whether an individual is working or not. Many CIF members have suggested that this uncertainty is being exploited by people who are misusing the social welfare system. The anecdotal evidence would suggest that certain construction operatives are claiming jobseeker's benefit while securing work on the side, which they are not declaring. The jobseeker's allowance payment provides a subsidy to the construction operative. As it is topping up income through other means it can provide a greater margin for the project, enabling it to offer a lower tender when competing for work.

It has also been suggested that some construction companies are encouraging their employees to make use of the jobseeker's allowance payment. These workers might receive a cash payment for the work they carry out for the construction company while at the same time receiving the full jobseeker's allowance payment. The work is kept off the books, making it more difficult to follow any paper trail and stop this practice. As the workers are receiving the jobseeker's allowance the construction company does not have to provide as large a wage as might otherwise be expected. Effectively, they are using the social welfare system to subsidise their wage expenditure. This method also allows construction companies and construction operatives to avoid their PRSI and other regulatory obligations. It is also worth noting that another area whereby some construction operatives and construction companies engage in black economy activity is non-compliance with the health and safety requirements for the industry. Not observing these regulations is another way for some construction operatives to cut corners and reduce costs.

The CIF, and others involved in the construction industry, also consider construction companies that do not comply with the wage rates and other employment conditions set down under the Registered Employment Agreement, REA, as engaging in black economy activity. However on Thursday 9 May 2013 the Supreme Court found a section of the Industrial Relations Act 1946 unconstitutional. This has significant implications for the implementation of the industry agreement. Given this ruling and the uncertainty concerning the future of the REA process for determination of wage rates and associated costs, the issue of payment of former REA industry rates of pay is not addressed in this submission.

To help provide a stronger impression of the extent of the black economy problem in the construction industry, the CIF undertook a survey of its members on the issue last summer. The findings of this survey were revealing and help illustrate how much a cause of concern this activity is to our sector and how widespread the problem seems to be. The statistics in this regard are contained in the submission so I will not read them out. I will be happy to respond to any questions which members may have on them later.

The CIF believes measures to stamp out black economy activity in the construction sector should be introduced. In the current economic climate, it is important that all construction companies and sole traders act responsibly and comply with all the legal obligations. No one should be avoiding their taxation requirements or misusing social welfare payments. The CIF has prepared the following suggestions, which it believes would have a considerable impact on the level of black economy activity in the construction sector: all construction clients should advise the Revenue of the commencement and identification of contractors employed for any construction project over a certain value; payment of buildings grants, if any, and other incentives should be made conditional on the work being carried out by tax compliant contractors; a mandatory site notice displaying names of client, contractor(s), professionals, and planning reference numbers for all projects over a certain size should apply; tax assessment and relief should be contingent on the provision of a certificate of building costs, which would identify all relevant building contractors; Revenue should review all commencement notices lodged with building control authorities to ascertain the location and scale of construction activity and monitor who is undertaking the construction work; the banking system should be obliged to notify Revenue of all significant cash withdrawals or loan draw-downs processed so that Revenue can then investigate who has been paid for work undertaken; in regard to fuel laundering, a mechanism should be prescribed whereby all diesel fuel would carry the same duty levels at point of sale so that compliant trade users can recover VAT in the normal course of business; provision of a facility to enable homeowners reclaim the VAT incurred on costs associated with the renovation and upgrade of their principal private residence; provision of a facility whereby taxpayers could have their personal tax allowance increased by a proportion of the construction costs incurred in the renovation and upgrade of their principal private residence where registered contractor(s) who provide their tax reference numbers are engaged; an information campaign, similar to the insurance fraud campaign, should be undertaken by Government to assist in stamping out shadow economy activities; and finally, where a private individual or entity is to engage a company or individual to undertake construction-related work on their home or other structure, private individuals or other entities should be obliged to check if the construction company or person undertaking the works has a valid C2 for works above a certain figure, and to notify Revenue accordingly.

Feedback provided by members indicates that many of those individuals, householders and businesses who have engaged black economy construction workers have done so unwittingly. Generally, the clients who have hired these operatives are unaware that the construction workers they engage could be operating outside the tax provisions and labour regulations. This suggests these people are funding the black economy in the construction sector without realising it. To help avoid future engagement of black economy operations, the CIF has prepared the following points to assist individuals, householders and businesses to ensure they are dealing with legitimate construction operatives who are tax compliant and meet relevant construction regulations and standards. We hope that through encouragement of adoption of these suggestions, there will be a decrease in the level of black economy activity in the construction industry. People shouldask for a contract or VAT number; check that the company has a C2 certificate; ask from where the construction materials came;ask if the company has certified health and safety standards; and ask if it has insurance and if it is a member of the CIF.

The CIF thanks the Oireachtas Joint Committee on Jobs, Enterprise and Innovation for the opportunity to make this presentation today. We are happy to respond to any questions members may have.