Ms Orla Hegarty:

That is always the tension in construction contracts whereby somebody does not want to be ripped off by paying too much for something. The difficulty is if you do not get the balance right you may end up driving costs too low and there is not enough money then to do the job, in which case you get corner-cutting and substandard work, or a contractor who goes out of business. That is always the tension. It has to be managed because construction contracts run over a long time. That is why the people who are at the coalface of delivery, who know how to manage construction contracts, should be given contracts that allow them the mechanism and the tools to do that effectively. In terms of the State trying to manage costs on that, clearly for the past 15 years there has been a priority in policy for cost certainty over value for money. The premium that had to be paid for cost certainty has not been that high in a recessionary period and therefore the issues with paying that premium for cost certainty has been masked to some extent. It has now been unmasked. The State needs to switch back to value for money and less cost certainty over having cost certainty at the beginning. That means managing the costs more effectively through the job. It means empowering with contingencies people who are at the coalface, who can make decisions and keep things moving rather than have the stop-start and delay that adds cost and is a disincentive to people tendering at the moment.

In regard to the smaller and the regional contractors, I accept it is very difficult for people who are trying to build businesses locally, again coming out of recession, to re-establish themselves and build capacity and maybe get work for turnkey or whatever. As was mentioned, HBFI really has gone in a direction that was not intended. As far as I am aware it can lend up to €75 million to one entity. That was not the original intention. A similar type entity in Scotland has a limit of about £1 million on what it will lend to contractors. That mechanism could be very useful if the money in HBFI was devolved into broadening the market and establishing a firmer market that is more diversified. Lending €1 million to a small developer would allow him to build four houses. That would allow the business to become established, take on apprentices and be capitalised for buying equipment. Then it sells those four houses and has seed funding that lets it build the next phase. I would like to see some of that used more strategically with a view to supporting the construction industry and the SMEs outside of Dublin in many cases, where these tender inflation issues are biting very hard. They are doubly hard because builders are trying to finance the job under terms the State has set for them and they are in an inflationary period with contract terms that transfer the risk onto them. It is a risk they cannot bear. The risk for the State now is that people will not want to tender on those terms.

On VAT, taking VAT off can look attractive in a simplistic way of reducing cost but the mechanism of that in reality may be difficult and unworkable. Having different VAT rates across different types of construction would be open to abuse and probably administratively very difficult. I would have concerns about that. Also, cutting VAT overnight would not necessarily reduce the cost of private homes. The price of homes would probably stay at the same level and the value of land would go up immediately overnight. A VAT cut would lead to a windfall for land holders.