Oireachtas Joint and Select Committees
Thursday, 5 July 2018
Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach
Contractual Arrangements for Public Sector Infrastructural Projects: Discussion
If there are questions, Mr. Hennebry or anyone who wishes to answer or make a statement is welcome to do so, provided the rules on privilege are observed.
I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.
I invite Mr. John Hennebry to make his opening statement.
Mr. John Hennebry:
We thank the Chairman and the members of the committee for their invitation and the opportunity to present our concerns. Unfortunately, the forum does not permit all the subcontractors to be here so we take this opportunity to thank all those involved for their work and support to date.
As members will be aware, the collapse of Carillion, which was a joint partner in the Inspired Spaces consortium delivering the public private partnership, PPP, bundle 5 schools, and the subsequent liquidation of the builder, Sammon Contracting Ireland, have ensured that these building works will now be completed by a new main building contractor.
Our group represents a number of specialist subcontractors who were engaged by Sammon to deliver the buildings. We began meeting informally to share information when it became clear to us that there were growing financial issues with both Carillion and Sammon.
We have been invited here to give our input in regard to irregularities in the certification processes for the school projects. We hope to outline the context and scope of these concerns and the potential implications for the delivery of the schools. Further to that, we will also address more wide-ranging issues regarding PPPs, the delivery of the PPP company and the remit of the NDFA, on which the committee has previously heard evidence.
It has become clear that for several of these projects the assigned certifier intends to certify large portions of works undertaken by specialist subcontractors without providing relevant documentary evidence, which has become routine, using the building control amendment regulations, BCAR, certification system. This approach has become accepted practice due to building control guidance and project precedent. These precedents include all previous PPP schemes and standard building contracts that I and other subcontractors have been part of; we know that is the standard.
We strongly question the ability of any certifier to ensure that all relevant building regulations have been met, that the works have been carried out as designed, and that all the building products are compliant without the support of ancillary certification from the specialist subcontractors who carried out the works.
In essence, these certifiers intend to move well outside the established precedent of evidence-based submissions and ancillary certification. This has wide-ranging potential for implications for the health and safety of the eventual occupants, who in these specific cases will be mostly children and young adults.
It is important to note that the current building control management systems were introduced after several high-profile failures. The problems were eventually recognised to be partly due to systemic failures, which the current system was designed to address. One high profile example was the evacuation of the Priory Hall apartments in Donaghmede in 2011 due to the dangers presented by substandard works and lack of inspections.
The current BCAR system relies on an evidence-based approach, ensuring there is a clear record of works being completed to the required standards, and to meet the design specification. In essence, it becomes a risk management strategy, overseen by the assigned certifier who assumes the legal responsibility simply to collate this information.
It is clearly stated in the code of practice for certifiers that the role of the certifier does not include responsibility for the certification of any builder. That is why the BCAR system is relied upon and begs the question: if ancillary certification from specialist subcontractors was a requirement of the original contract with us, Sammon Contracting Ireland and building control approval, what has changed?
The proposed approach by the assigned certifier would be similar to the historical laissez-faire attitude to building control compliance, something the current systems and legislation were specifically put in place to avoid. Committee members will be in no doubt about the headline issues such as structure, fire safety and environmental performance being regulated by building control legislation but that regulation also extends to virtually every element of building works, for example, technical guidance document D.
Our group comprises contractors specialising in many different areas. We are able and willing to demonstrate in detail, if required, numerous building elements where it is extremely difficult to see how certification can be achieved without our support. Most of these arguments are technical in nature, relating to the specifications and performance issues of products and installations.
With regard to some issues, for example, CE marking of the structural steel elements that hold up the buildings or various elements of floor covering systems, it is impossible for any third party to provide certification. As we have said, these issues with the certification of the building could also have a knock-on effect on the contractual arrangements between the State and the NDFA and the delivery consortium. Perhaps more important, the risks will have real-world effects on the students who use the facilities should they be unavailable, which could affect the value delivered by the projects considerably.
The potential for delay in building control certification could lead to the current temporary arrangements for the affected schools having to continue for an unknown timescale. Should there be challenges to the final certification of the schools, occupation and use of the buildings could be further delayed. Ultimately, should certification be granted and subsequently removed, the buildings occupants would have to leave and services re-sited.
In these circumstances, it has been made clear by the NDFA that the financial risk falls to the PPP company rather than the State. This is true in that the facilities would be unavailable and thus penalties applied, but it appears that the consequences have been somewhat overlooked. In this case, it would mean that facilities are not available to students. It is difficult to argue that risk transfer and value for money are working as intended if students are not in their places of study. This is especially true should there be any widespread failure of building elements or systems due to inappropriate certification leading to longer periods of unavailability, especially considering that the sites have been unattended for several months.
The PPP contracts allow for deductions in payments should facilities or services not be available. This seems reasonable in smaller instances, for example, classrooms not being available for an afternoon or even several days due to a leaking pipe. It does not seem to be designed to allow for the loss of an entire school which, considering current proposals and our concerns around the law regarding certification, is a distinct possibility.
As we have no contractual arrangements directly with the NDFA, we also hope to use this forum to get clarification on several points. The first is that whether this type of potential large-scale failure of service and facilities has been examined in any risk analysis of the projects. We also question the ability of the PPP company and the certifier to demonstrate that the original specification has been met. Design and construction changes at all stages had to be shown by subcontractors to whom I have spoken to meet specifications. We know of numerous examples that can be provided whereby changes to design elements have occurred. Without the support of the subcontractors and manufacturers involved, these changes cannot be reliably shown to meet the specification originally set out.
In previous evidence to the committee, the NDFA has also referred to independent advice in regard to building control and specification issues. Should it confirm if this advice is also provided by the assigned certifier? While we do not intend to question the professional integrity of any persons, it seems counter-intuitive that a party employed by the PPP company could be seen to offer independent advice to the client or the NDFA.
While the NDFA has been clear that it does not have any responsibility regarding payments to subcontractors, it seems that meeting building specification falls strongly under its remit. We would ask for further detail on how it intends to ensure that the full specification is met.
Another issue we would like to raise in regard to the collapse of Sammon is that of retention moneys. Many subcontractors have completed works on previous Sammon publicly financed projects, met all necessary standards and agreed final accounts for their work. They have been paid for their contract but they have not been paid in full. A portion of the final contract sum is retained during the liabilities and defects period. In some cases, these sums are substantial. These moneys are now due and we believe are held by the State.
As Sammon does not exist, the contracts cannot be completed, leaving contractors out of pocket yet again. To our knowledge, no contractual arrangements exist to recover these payments, which are plainly owed to contractors as retained moneys. Can the NDFA comment on this, or is it again outside its remit?
Considering all the issues which have been raised, we are also forced to question the PPP model more generally. A main stated aim is the transfer of risk to the private sector. We point out that in this case the risks have been transferred back to Irish citizens and businesses through a series of holding companies and funds. It is they who have suffered considerable financial damage and personal stress due to this collapse, again bringing the real-world implications of risk transfer into sharp focus.
There is a huge issue of fairness which seems to have been overlooked when designing the PPP contracts. The NDFA has oversight of finances until the point where it truly matters, when paying those who carry out the works. We are in a situation where students will be using buildings and equipment that have not been paid for. This is in no way morally acceptable.
It was acknowledged that cherry picking occurs from subcontractors, in that certain specialties are paid to provide certification. Again, this is morally wrong. Some contractors do not have the option of withholding certification, and it would be reprehensible should they not also be paid for work carried out.
As a group we are ready and willing to engage constructively to resolve these issues. The NDFA has produced a detailed briefing paper regarding payments to Sammon subcontractors for the committee. We ask the committee to ensure the issues raised
today are clarified in a similar manner.
I thank Mr. Hennebry. I note he is joined by Mr. Mark Kelly, Mrs. Tina Walsh, whom I know, Mr. Niall Reynolds, and Mr. Mike Miley, whom I also know. If any of them would like to express how their businesses were affected, we ask them to do that.
Ms Tina Walsh:
I am the financial director of Peter Walsh & Sons Limited, which is a manufacturer of premium educational furniture for colleges and educational institutes throughout the country. We have been in business for more than 60 years. We supplied schools bundle 5 and parts of schools bundles 3 and 4. Out of those five schools bundle projects, 40% or two out of five have failed, which is a high failure rate. Approximately 12 schools in total have been affected. PPP schools have been run by facility management companies for 20 years, which replace furniture that is damaged, including table-tops, replacement feet, chairs and so on. The schools under these schemes have lost all control over the management of their own schools, to the extent that the caretaker cannot even change a light bulb, and the principal cannot update his furniture to suit the latest methods of teaching which are standard in other European countries, such as group work and other methods. I can speak only on my own behalf as a school furniture manufacturer.
We furnish seven to ten new school builds on average annually, and we also look after existing customers. In the 33 years of business that we have run it ourselves, we have never experienced anything like this. At this time, we are owed €250,000. In layman's terms, this is approximately €1 million's worth of work to cover the costs. This has a knock-on effect. We work on a 30-day credit term with both customers and suppliers. As one can imagine, this puts a financial strain on our company. We have been waiting for nine months for payment for furniture that is in schools. We have been told through the media that these schools will open in September. How? They have furniture from our company that has not been paid for. That is not right and it will not happen.
We received liquidation letters from companies involved which clearly state the first creditor to be paid will be Revenue, the Government body. The mistake was not ours as the subcontractors. We, as subcontractors, should be paid first, before the Government bodies, because the error was not ours. It always seems to be the small man who carries the can. We are a small company which has to do due diligence on all customers and suppliers alike. Who has done due diligence on the companies in question, if any due diligence was done? We have signed no contracts with the companies involved. This furniture was supplied on an order-invoice basis. All invoices clearly state goods do not pass until invoices have been paid in full. We were told we cannot access these buildings to reclaim our furniture, which has not been paid for, because we would be trespassing and would be held in contempt. One can imagine how surprised we were when we heard the schools will open in September with furniture that has not been paid for. The Department of Education and Skills has washed its hands of this until the schools are completed. It must be resolved, and the Department needs to become involved.
Mr. Niall Reynolds:
I have a company called Rapid Response Security, which does the security at Eureka Secondary School, Kells, County Meath. We were left short from approximately October. We kept pestering them to get the money from them and we heard every excuse under the sun. Eventually, at Christmas, we said we would pull the security from the site, and we were paid one invoice. After Christmas we went after them again and we were paid a second invoice. We are still owed money to the tune of €16,000. That is our working capital, and it puts a strain on us and on our relationship with the banks. It means that for us to take on work now, we have to pay upfront. All our men were paid at Christmas. Now it means we cannot take on work because our working capital is with Miceál Sammon and company. We do not have it anymore.
As a result, I started to ring other subcontractors. I realised my predicament was not as bad as others. When one rings a company now, one rings the man on site, which might turn out to be the husband. The phone will ring and then go through to a secretary, who is his wife. If one wants to get the real story, talk to the wives and one will hear it. The wife will say not to tell the husband what she said. In one instance, a woman confided in me she had three children, and all the money they had from christenings and communions and so on was in the credit union, and they had to take the money out to prepare one of the sons for confirmation two months ago. The husband supplied and is owed close to €100,000 because of this debacle with Sammon. That is one example. To say these people are close to suicide is an understatement. We have tried to get this across to Deputies and Ministers. I sat before certain Deputies and Ministers and asked if they understood that from their front door, half a mile away, there were people in distress. I asked if they had talked to them or their wives and the answer was "No". On the following evening, I saw them parading on the television in Paris or somewhere else. These are the people we elected to represent us. There was no leadership coming from them.
I thank the witnesses for coming in and telling their own stories in the way they did. It takes bravery because many of them are involved in the construction industry and specialise in education, where are contracts that are awarded, and the State holds a lot of the purse strings.
It is important for people to speak up and call it as it is. It is clear that the subcontractors have been abandoned and let down by the system. We have many public private partnerships, PPPs, holding companies and other elaborate structures. The subcontractors are the lifeblood of the Irish economy, employing people on the ground and building up family businesses throughout the generations, some of which have been wiped out or are in real danger of being wiped out.
How many subcontractors are affected? We heard from the NDFA that there are 160 subcontractors in total. How many subcontractors is the group in contact with and from the witnesses' understanding what is the total sum owed?
On the impact this is having on businesses, Mr. Reynolds should note this is not the first time I have heard that story regarding the stress this is having on individuals' mental health and that is putting them into a very dark space. We can only appeal to people to reach out for help.
What is the impact that people within the group have experienced in terms of their businesses? Are businesses still clinging on and are many of them in danger? The amount of money owed individually varies. We hear figures of €16,000 and €250,000 but everything is in proportion. A business could be owed only €5,000 but that could put a business under depending on its size and scale and its credit agreement with a bank. Will the witnesses give an indication of how it has impacted on businesses thus far and the likelihood of it so doing if this is not resolved?
Mr. John Hennebry:
In my own personal experience, I have recently suffered a spate of depression. For a week or more, I could not get out of bed. Creditors who have been paid, having heard this on the grapevine, are no longer supplying our company even though we have no bad credit history with them. This is having a knock-on effect for projects on which we depend to work ourselves out of this situation. My father is the second generation and I am the third generation in our company. My father is 67 years of age. He was hoping to retire but it does not seem like that is going to happen now. His legacy, which he was expecting to leave me, my brothers and my sister, is gone. I know of companies that were in the group but are not longer in it because they are no longer in operation. One can only imagine the magnitude of wrecking this has done throughout the industry.
Mr. Mark Kelly:
I have a second-generation business, started by my father in 1977. We were fortunate and happy to be able to work through the worst recession this country has endured. We seemed to be able to manage, to do our jobs and keep everything nice and tight. We ran a tight ship. At the start of the upturn, this project came along. The main reason we took it on was because it was a government job. When I heard that it was a government job I thought it would be a safe, secure job. Having traded through a bad recession, this is the first time we have been hit with a company owing us money. Our suppliers have reduced our credit limit from approximately €40,000 to €5,000 per month. We can go through €5,000 in five working days, which leaves us trying to finance ourselves for the rest of the month. We have tried to open up accounts with other creditors. One is almost on one's knees begging for credit. I have traded through the recession. We have been hit in this instance but we are fighting back. We will continue to fight back. We will not let this do us down but it will be a hard long slog to get back to where we were.
We have been trading in Dublin for 20 years but it feels like we just walked into Dublin last week in that we are starting from scratch trying to access credit. As Mr. Hennebry said, when tendering for jobs one knows the materials that will be needed but we cannot tender for work because we do not have the credit to supply materials. This is putting us back a long way. Thankfully, we have picked up one project that I have to try to manage myself. I have not taken a salary from the company since December. I had to let my office staff go so I have to run the office and the site myself. I am trying to ensure I have wages for my staff and I am tendering for work. I had to let three staff go, the weight of which is on my shoulders. As stated by Mr. Hennebry, we are just engrossed in the work. When we go home at night, it is very hard not take the work home with us. As much as we try, we cannot do it. If one has a bad day, it is hard to put it at the back of one's mind and not take it home. I emphasise that one of the reasons we took on this contract was it was a government project.
Reference was made in the opening statements to morality and the ambition to have available those modern schools built by the witnesses to children and educators next September. However, as stated by the chairperson last week or earlier this week they will be sitting on chairs and playing on football fields in respect of which subcontractors may have gone to the wall because they have not been paid for and so on.
The issue is that the NDFA has to certify the works. It has to agree that the works were carried out to standard.
My apologies, the NDFA has to satisfy itself that the works are certified and in compliance. The issue here is that it is washing its hands of that process. It is allowing Woodvale to carry out that process with an independent assessor. In Mr. Hennebry's view, how can an independent assessor certify works that the subcontractors have done? In correspondence to the committee, the NDFA said that the main contractor, which is Woodvale, will employ other subcontractors to complete the works not completed or to certify works that have already been done. In Mr. Hennebry's view, how is this legally possible under the Building Control Act?
Senators should go and vote and then come back to the committee. For the benefit of the witnesses, Senators have to go to the Seanad for a vote. Deputies might have to leave for a vote in the Dáil as well. That is the nature of the business we are doing.
Mr. John Hennebry:
I have in front of me the Irish code of practice for inspection and certifying building works. The NDFA has said that the role of the certifier is to satisfy himself or herself regarding the works done. That is not what is stated in the code of practice. Item 3.5 sets out the certifier's role. It states:
The role of Assigned Certifier does not include responsibility for the supervision of any builder. They may or may not be a member of the design team.
It also states: "The Assigned Certifier is assigned by the Building Owner as required under the Building Control Regulations."Under the building control regulations, Part D, the assigned certifier is the subcontractor. As I said in my opening statement, this is why the Building Control (Amendment) Regulations, BCAR, are in place.
I do not see that the NDFA has looked into this in enough detail to realise the law is on our side. I have a statement from the flooring adhesive manufacturer mentioned by Deputy Pearse Doherty at the committee's previous meeting. It is a huge global manufacturer. It states it is its belief that without ancillary certification these products cannot be guaranteed, warranted or certified.
Mr. John Hennebry:
Exactly. The adhesive is the bond for the floor covering. I am waiting for other manufacturers to come back with their letters, which they are having legally checked, with regard to the guarantee of the coverings. The bond is the most important because if the material starts to come up it does not matter about-----
Mr. Hennebry has made the point that in his belief the law is on his side and the NDFA has not properly looked at this area. I have the building control regulations before me and they clearly state this. I cannot see any way that subcontractors can certify works that they cannot physically see. They would not be able to certify that the steel put into a foundation or the pipes put under a football field were the proper-----
If Mr. Hennebry argues that the law is on his side, and Ms Walsh mentioned it simply will not happen that students and teachers will go into schools in September and sit on products that have not been paid for, what do they intend to do?
Ms Tina Walsh:
We have a retention of title on products that have gone in. This means they are our products until they are paid for. They have not been paid for so, by law, I should be able to go into the school and take out my products and sell them on so I can bring back some money to the company. We have been waiting for nine months to get paid. We have already had to pay our suppliers, which has created huge financial strain, as well as mental strain as everybody here will say. Family life no longer exists for us because we are taken up with the worry and stress of this. I have been told I cannot enter the building because I would be trespassing and I would be held accountable. Why? I am only going in to get something that is already mine. I have no payment for it. How can children sit on furniture we have supplied which has not been paid for? It will not happen.
In the absence of the NDFA or Woodvale coming to the witnesses and asking them to certify their own works and paying them for the work they have done, and we are aware there is cherry-picking and some subcontractors are doing this while others have been left high and dry, then-----
Mr. John Hennebry:
There are a number of options and some are more wise than others. One is to picket the schools and get ourselves arrested as a group of people. That has been suggested by many subcontractors. It would cause further delays to the State and the NDFA so they would incur further costs but that is not what we want to do. Another option is the legal option and challenging this. We have spoken about this in recent days. We are starting to build very strong cases to challenge this and have a judicial review on the basis the building regulations have not been met, which means the buildings would have to be evacuated and the children rehoused. Half of the schools that were there have been knocked down. Where will these children be put? There are many options available to us. Some of them are not very plausible but they are options.
Ms Tina Walsh:
We have also put fixed furniture into schools and we will definitely be at a loss for that if nothing is resolved. We cannot go in with a kango hammer and take it out. Well, we could, but we would be brought to court. Through no fault of our own we are the ones paying the price and we have done nothing wrong. I do not understand why we have been put in this position. We have done nothing wrong.
Mr. Niall Reynolds:
Originally when this broke and we got talking, a minority of people wanted to break into the schools and take out what was in them. We told them that was not the route to go. Then we moved on to protesting and picketing the schools. Thank God, 75% of us want to go the legal civilised route but 25% want to take the route of picketing, blocking motorways and breaking into schools to take out their stuff. I spoke to one man this morning, and this can be verified but I will not name him, who told me not to talk to him about court because he spent €19,000 taking Mr. S and company to court only to lose it. I am not exaggerating, but he said to cap it all his wife died suddenly two months ago. This is the offshoot of this. We want to convey this to the NDFA and everybody else. We are the lifeblood of this country, and from Wexford to Meath subcontractors are keeping the country going. We cannot afford to lose any more of them. We cannot afford to lose any more businesses. We appeal to committee members. I do not know what influence they have with the NDFA-----
I offer my commiserations to the witnesses because it sounds like the worst days of the last collapse, which we all hoped nobody would experience again. By way of information, I have raised this issue with the Minister for Education and Skills five times, directly in the Dáil and by way of questions. It is the same with the Minister for Finance and the Taoiseach. I represent Dublin West, which has a massive school building programme at primary and secondary level. All of this stuff, including the 20-year company management, is very important for the parents sending their children to school.
I specifically asked questions about Wexford because my understanding was that in Wexford the teachers had moved some of their stuff into the school. This is what I was told. The witnesses have spoken about the legal niceties. Technically this was a completed building because all that was left was the cleaning, dusting and final opening and handover to the facilities management company process. We were told by the Minister of Education and Skills that this is all sorted with regard to that school and the other school that is practically finished, and that subcontractors were being found to get the other schools on track. While there was no commitment on those schools, I and Wexford Deputies from all parties left the Dáil Chamber with the strong impression the Wexford situation was fixed. To follow up on what Ms Walsh said, will there be an arrangement whereby the schools that are practically finished will be available in September, as they have been told and as has been in the public media?
The witnesses have a contact group of the various subcontractors. What is their liaison with the NDFA? Is there a specific subgroup or an individual who is the link person to deal with the practical issues and the handover issues should there be a replacement main contractor?
I read up on the history of Carillion and Capita in the UK. Much of it has been covered over the past two months in major articles in the Financial Times.
There was a strong suggestion running through the articles of a problem with underbidding and also poor management. The company was being sold on and it was a stock exchange company. In respect of Sammon, the main contractor, did the witnesses, as the principal subcontractors, get a sense that there were these problems? Eight months ago, did they wonder if the project would last? Were there any indications from the UK that Sammon and Capita, which does not have a major presence in Ireland, had overreached in how they priced? What do the witnesses believe is likely to happen in Wexford in September? What structures, if any, has the NDFA established to assist?
My first question was about the Wexford school. The Minister for Education and Skills, the Minister for Finance and the Taoiseach have been highly reassuring that the two schools that were almost finished would be ready for occupation by students. The communities have been told this as well. We are told the other projects will be back on track and will be built on time. What barriers, if any, are there to that happening? Ms Walsh indicated that her company has a lien on the furniture it supplied because ownership does not transfer until payment is made. I do not know, in terms of others in the building industry, if it has been absorbed into the actual building or whether that is feasible.
Mr. John Hennebry:
I am aware that the certifications have been passed for Wexford, which is probably why there is such confidence in respect of that school. The building was far advanced. By nature, the top heading of the ancillary certification form states "on completion." Completion of the contract is when a contractor is paid.
I have a follow-up question on that. Can another contractor such as an engineer, architect or other qualified person step in, even though the person who has done the work has been shut out? Is there a process through the Dutch investment whereby other contractors can be brought in?
Mr. John Hennebry:
We would very strongly challenge that, as I pointed out In my opening statement. We do not believe there could be such a process if we build a legal case from the manufacturers, installers and so on. We do not believe that anybody else can certify our works in Ireland because of the building control amendment regulations, BCAR, system and the precedent that exists. Maybe it would be possible to some extent in the UK but not in Ireland. It has never been tested as far as I am aware but there are historical reasons for the system that is in place. We do not believe anyone else can certify and we would be willing to challenge any such decision.
On the retraction of the certifications that are in Wexford - the Deputy's question was specific to Wexford - again it is on completion and the contract is not complete until somebody has paid. I think we have legal grounds to retract that certification. If the school opens, the group in Wexford has talked about handing out leaflets. It is very strong on that. If that does not get anywhere and the National Development Finance Agency, NDFA, ignores us, we may use pickets. We would contact the parents' associations and ask them to understand our position and not to cross the picket line. That would create a problem for the NDFA and the finance committee.
I have mentioned the legal challenge. Ms Walsh rightly referred to the removal of her products. Who will stop her from entering a public building and removing her products, as she is legally entitled to do?
Mr. Mick Miley:
At this stage, we have provided a fair overview of what has happened, how it happened and how we arrived at this point. My mission today is to find out what members can do to ensure we get paid for works carried out. We are dancing around the edges, while legalities, barristers, pickets, financial statements and state of health are all issues in a big pot. The big question is whether the Government can stand over not paying us. Can it stand over skipping off out the back door and bringing in a new certifier to ensure we are not paid?
The Government, State and Department of Education and Skills are in control of some €250 million, which they will pay to a Dutch finance firm they engaged in the first place. It looks like they are trying to do as much as they can as quickly as they can and eliminate or ignore us. By doing that, they are ensuring the Dutch company gets its full and total payment of €150 million profit, subsidised by us who have paid our staff. It seems the Government also wants VAT from us. It is keeping our retention and for us to stay in business it wants us to keep the Revenue Commissioners happy by paying them money that the Government refuses to pay us. It is a naive of the Minister to choose not to meet us. The finance company does not want to meet us. We are being ignored. The Minister stated on television that the State was at no financial risk. He should wake up because we are contributing to his existence. We pay our way and pay Revenue and we did so through a bad recession, yet this is the answer we are getting.
We are not on trial today. All of us survived a recession when we were paid poor rates, had high costs and had to get rid of staff. As Mr. Kelly said, he had to let girls out of his office go. We are not on trial. All those who are hanging on to ministerial, departmental and Government stuff and trying to bypass us are out of order in the sense that not one euro of the €250 million has departed the coffers of the State. Meanwhile, €4 million is the figure bandied around for contingency works such as roundabouts, lead-ins, footpaths, gateways and entrances. Not one penny has been paid to the schools.
If the members do not have an idea how to help us, I ask that, before the Government makes any payment to any financier, it should create a contingency fund for people who have paid into the State but have not been paid for work on these sites. We are not looking for a subsidy or contribution like those paid in agriculture. This is not a subsidy but a reimbursement to people who worked and were paid for revenue that was paid to the Exchequer on their behalf. We are unpaid collectors of Revenue money. We have paid, otherwise we would not have our C2 tax clearance certificate or access code, as it is now known.
It is very simple. There is €250 million in the hands of whoever controls the project here, be it the Minister for Finance or the Minister for Education and Skills. That money remains unpaid. We have carried out work for which we have not been paid. We are not looking for delay money, penalty clauses or anything, just the price agreed on the day we qualified to do the job. If we qualified on day one, we are still qualified. We do not need to be court-martialled, assessed or certified and no verification is needed of whether we did it right or wrong. We were under scrutiny throughout the project.
We were scrutinised by representatives of Carillion which seemed to think it was a good idea to send them over to keep an eye on us. We passed that test and our work is done. Our invoices have been submitted and we are not paid. How will the committee ensure that we get reimbursed and not cost the State in investigative costs such as lawyers, barristers and going to court without the necessity picket a site? This is simple. How does one solve it without that necessity?
The second question I asked was whether there is any kind of a liaison with the NDFA. What Mr. Miley has been saying is almost that they have been pushed to one side. Is there a mechanism whereby one has a contact structure for the NDFA? Ultimately, the NDFA is the holder, on behalf of the State, of the contract.
Mr. John Hennebry:
I watched the questioning by Deputy Pearse Doherty of the NDFA in the other committee room a few days ago. As of yet, we have not contacted the NDFA. After watching the attitude of the NDFA's representatives, it would be useless for us to try to contact them because their attitude is to wash their hands of it.
I have read statements prior to reaching that view of various TDs and Senators who had contacted the NDFA on our behalf. We contacted them as our local point of reference from all over the country. The statements that we were getting back from the NDFA were akin to the victory gesture. That is why we see no point in contacting them directly. There is no contact between us and the NDFA currently.
Finally, the witnesses spoke about exploring the legal option of a judicial review, which, in a similar case to this, many people probably do. Have they had legal advice in the context of what Mr. Miley was saying, that they have a legal status which they could ask the courts in some way or other to enforce to give them fair play?
Mr. John Hennebry:
I have had legal advice in a personal capacity as chair of the group. The legal advice came from a close friend of mine. He is overseeing the whole scenario and helped me to write my opening statement. He is of the opinion that there is a strong case there.
However, as my colleague stated, we would prefer not to go down that route. The finance committee needs to make a decision here so as to avoid that.
I thank the construction sub-contractors for the presentation and for sharing their stories. I am sorry we had to go for the vote earlier on.
It is clear what has happened here in terms of the Government responsibility. We had the NDFA in before us the other day. In terms of the failure to conduct due diligence, the NDFA failed. As to whether the Government needs to sue the audit company that stood over the accounts of the company the contract was awarded to, that is an option that Government needs to be seriously looking at. The buck has to stop somewhere.
The decision made was obviously the wrong decision and the sub-contractors were at the end of the food chain in the sense of the impact. It will continue to have an impact because through no fault of their own their creditworthiness in the future will be brought into question. The Government has a responsibility to protect indigenous businesses such as these first, second and third generation businesses. That is what would seem to me to be the first step. We, as the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach, should suggest that the Government put such protection in place immediately.
When I asked the NDFA the other day whether it had correspondence with the audit company involved, the NDFA's representatives stated they did not. They need to enter into formal engagement with the audit company because it gave them misleading information in terms of standing over the accounts.
I am a parent of somebody going to school. If one does not pay for something, one has stolen it. It is as simple as that. It is the Government's responsibility. Sending children into a school where they will be asked to use stolen property is so unethical it is off the scale. What else can parents do in that situation? Is it the responsibility of the Department of Education and Skills? It comes back to what Mr. Miley said. We need to get who is responsible. The Government is responsible for that. They are responsible for the situation that the sub-contractors find themselves in and they are responsible for the situation that they will put children, parents and families in come September if this is not resolved. There is a small window of opportunity there to resolve it. For the Government to put a contingency fund in place that will assure these businesses in the future, ensure that the furniture is paid for and then sort it out with the main audit company, would be the clearest way that I would see it being done. In terms of the certification for the other company, it must be compelled to bring this company on board to be able to certify the work done to date. It needs to be instructed.
In terms of what the Chair is saying as to whether Mr. Miley will have an answer going out of here today, it has been valuable to have Mr. Miley here. In one sense, I wish Mr. Miley had been here before the NDFA because one could see that there was this hands-off approach of it being nothing to do with them. All of us, collectively, on the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach, know it had everything to do with them and everything to do with the original decision that they made. It may be that we will even have to bring the NDFA back in here but there will be specific actions that we should be able to take at the end of the hearing today.
I will not take any more time. We are much clearer now on what needs to be done than we were before we heard the presentations from the sub-contractors. We also feel, even though many of us are not in government, an obligation to ensure that theft is not facilitated which, to me, is what has happened here.
Mr. Mick Miley:
I thank the Senator Conway-Walsh for her comments. They are much appreciated.
Senator Conway-Walsh used the word "compelled". To bring the Senator up to speed, both the Minister and the finance committee refused to engage. We are depending on this committee and anybody who can force these people to stop dismissing us. We are not looking for a "subsidy". I use that word for a specific reason.
Mr. Mick Miley:
It is money earned, paid out and on which revenue and VAT are paid. The beneficiaries are the State, the Government and the Department of Education and Skills.
To finish my point as I do not want to stay talking for the evening, the Department of Education and Skills is the beneficiary of this project. At the end of the day, the Senator's children, everybody's children, teachers and whoever one likes to include are the owners of the ground. They purchased it. They inaugurated this project in the first place. They just cannot pick out a spot in the middle and say, "That has nothing to do with us". It was there at the beginning, it is there in the middle and it should be there at the end. I strongly suggest that contingency be taken out of the pot of gold that is due to be paid to the Dutch finance firm or whoever that man is at the end of the day so that he loses out on the overall amount. I am not picking on him in particular. That figure of, say €20 million, should be taken out as a contingency to hold for someone to adjudicate over as to who is entitled to be paid.
If at that point they wanted to change their contractor, team and engineers, without their consent, I would be okay with that; I just want to be paid. I stand over what I did and I am sure the same applies to others. If they wished to go away and pick a new contractor, I believe that would be acceptable.
It is correct. A total of €85.3 million of a contract worth €87 million was paid. The National Development Finance Agency had oversight of the system of payment. It seems that the main contractor was paid and that money did not filter down to the other contractors. Is that the position?
Mr. Mick Miley:
No. There is a principal figure of €100 million for a bundle of five schools, including building, construction and development. The repayments - what one can describe as hire purchase - over the next 25 years are that the State will pay €10 million annually for 25 years; hence the figure of €250 million.
Mr. John Hennebry:
We were given a figure of €100 million for the five schools and further education college that the developer was to build. There have been considerable savings in every construction project. It is probably now costing Dutch Infrastructure Fund less than €100 million to build them. There will be liquidated damages which could be blamed on KPMG or the NDFA, as the case may be, but the figure of €250 million which the Government proposes to pay still represents a very good deal.
Mr. John Hennebry:
Should the cost not be raised by Dutch Infrastructure Fund to help to pay the subcontractors to remove the problems they face? Could that not be included in the contract? Might there be some negotiations on the liquidated damages the NDFA would seek from Dutch Infrastructure Fund? It has a contract where it is taking money from it. Could it be a bargaining tool to help to pay us? Could the committee not instruct it to do so?
Let me interrupt as I wish to seek clarification on the €250 million figure. The initial cost of the buildings was €100 million which I understand was the tendering price and of which €87 million has been spent so far. It is like buying a car by hire purchase. The delegates should correct me if I am wrong, but the Government will start to pay once the contract has been finished. It will be €10 million per year for 25 years or €250 million. That is my understanding of how the process will work. Is that correct?
This is a question for all of the delegates. According to the NDFA, there was an arrangement within the overall contract that each month it would ensure the subcontractors were paid. The people here are subcontractors to the subcontractors. Is that correct?
Mr. John Hennebry:
We were putting in our applications. I was the quantity surveyor for my company and putting in my applications. For the first couple of months we were paid pretty much what we had applied for. However, by October, November and December the quantity surveyors for Sammon were coming back and saying for no reason that they did not agree with our applications. There was no substantiation, but they were knocking sums off in the 10,000s up to 50,000s. When it comes to having a meeting with them, one does not do it in the first or second week but when the next application is due to be made. That was in November/December.
Someone else mentioned communication with the NDFA. Has it contacted the people here, rather than they having to contact it? What contact have they had with the Department of Education and Skills or the NDFA, if any?
Mr. Mick Miley:
I asked for meetings, through political representations, and was refused point blank. The Minister for Education and Skills wrote a letter to the effect that the contract was with the Dutch company and that the Department had no reason to interfere or no grounds on which it could do so. We looked for a meeting on a personal basis and it was also refused. Every time we made an effort at this end to engage we were met with a blank "No."
Representatives of fhe NDFA were before the committee this week. I think the only outcome was that their attitude infuriated the members present; it certainly infuriated me. I am sure it also drove the delegates to the same conclusion that it was not fit for purpose. They said two things which I ask the delegates to consider.
It was said that it has two reasons for its existence. One is to give advice in relation to the funding of all of these projects and the other is to ensure the delivery of the PPP contracts. It is in the delivery of the contracts that it has failed, because the subcontractors are not part of the conclusion to the contract or finalising it and they are due the payment. Mr. Miley asked what can we do. The purpose of hearing from the NDFA was to establish its position within this structure of companies that now exists. I do not know whether the witnesses have seen a copy of the transcript of the meeting but we will make it available to them. We then wanted to establish the number of contractors and how we can assist. I can safely say from what members are saying that it would be our view that we would consider either bringing back in the NDFA, sending the transcripts to the Minister and the Department of Education and Skills among others, and making some form of recommendation as to how we feel the subcontractors should be dealt with, and how they should be included in the process of payments in some way. There is a responsibility on the State to ensure that happens. That is my firm view on it. While we do not have the authority to instruct the Department of Finance, we certainly have the pressure within the committee to begin to raise the matter, perhaps as a report to the Dáil, and to ensure further engagement with the agencies of the State that we feel are responsible for this, and that is what we will do. To the extent of our remit, we will pursue the issue to the nth degree. I think that is a commitment the committee can give to the subcontractors today.
I very much agree with what you said, Chairman. Could I suggest that you might explore two other potential options? We need legal advice from the Oireachtas legal service about the overall structure of the contract, and where, if any, responsibilities down the chain to the subcontractors may lie. The alternative to that is to, for instance, get some advice from the Comptroller and Auditor General on the same area in that this is a significant public project. What we are being told is that, notwithstanding a lot of legal structures around the contract, the suggestion is that there is in fact no legal status for the subcontractors in relation to the fact that the contract has collapsed. I say that without judging it, but that they have been left holding the baby, which is really sad and unfair.
We can do that. We might also seek clarification on the €250 million. We are trying to establish a focus here, to represent as best we can the views that we have heard today. Ms Siobhán Kelly wishes to say something. I will also call Senator Murnane O'Connor but first I will call on Deputy Deering.
I agree with what Deputy Burton and others have said. There are two issues. First, there is no doubt the subcontractors who are at the end of the supply chain must be looked after. The first question is how that will be done in the short term.
The Construction Contracts Act went through the House a few years ago.
I am open to correction but my understanding is that PPPs are excluded from the legislation. If that is the situation it must be addressed going forward given the current situation and the fact that other situations could arise and it is very important to plan for them.
Ms Kelly mentioned that Sammon had a bad name for many years and everybody knows about that. There could be another Sammon in the future and we must be able to plan for that. We should investigate whether the legislation needs to be strengthened to ensure that in future subcontractors would be looked after, in addition to the short-term measure we are discussing.
A House of Commons committee released a substantial report on the auditing firms and how they give companies a clean bill of health in the context of the collapse of Carillion. It was scathing in its recommendations, including calling for the break-up of the big four companies. It is not a document I have gone through in detail but I had a chance to glance over it.
We are going to get that document, which will be helpful to us. For the information of the witnesses, Mr. Cahillane told us at that meeting that the audit and how the analysis was approached was flawed. If that is the case, and taking into account what Deputy Doherty has told us about the parliamentary report in the UK, the Government has an obligation to pursue KPMG. That is something we will be investigating also. I invite Ms Kelly to give us the wife's perspective - she who must be obeyed.
Ms Síobhan Kelly:
Hopefully. We have all heard from the guys. As Mark has said, he has not received a wage now from the business for a number of months. If he is not receiving a wage my three children are not receiving what they are entitled to. Home life has been extremely stressful as a result. I am watching my husband come in every evening and I can just see the worry on his face about where he is going to get the money to pay the next bill or the next wage.
Now that the school term is finished the children are looking to go on day trips and holidays. We have to say sorry, it cannot be done. They are looking to attend camps but that cannot be done either. Our eight year old boy with special needs cannot get the full attention he deserves. Every day when the postman comes we wonder what bill is coming in or what urgent matter we have to deal with next. The situation has brought us down to rock bottom in the past couple of months, to the point that we have fought, argued and cried. It is hard to try to block that from the children every day of the week.
I can understand where every one of the men is coming from. It has been so difficult and the Government really needs to step back and see what it is doing to people. These are Irish contractors but instead the Government brings in contractors from the UK or anywhere else in the world; it does not look at Irish contractors. The situation needs to be sorted.
Yes, the constituency of Carlow-Kilkenny is ours - it belongs to the Chairman and me. It is important to clarify that.
The situation is unacceptable. The hardest thing today is to hear the stories of the witnesses and the reality of what is happening to our own people who have done the work. My biggest issue is the fact that the witnesses are here crying and looking for something they deserve, that they have worked for. They are coming to beg from the Government today for something they have done. That is unacceptable in the sense that they are now all under pressure. Families are feeling it. We have heard the stories today. I commend the witnesses on their bravery. They should not have to come here.
Mr. Miley referred to me. I addressed the Minister for Education and Skills twice on this in the Seanad and I got nowhere. I sent the replies back to the contractors with whom I was dealing in Carlow. The Minister led us all to believe that this was not in his remit and that he could not interfere. That is unacceptable. The Government must step in and address the issue because we need to make sure the subcontractors are paid. We need to make sure that their family lives are brought back to normal.
It is like what previous speakers said. When someone hears of a PPP and it is Government, they feel they are guaranteed their funding. That has always been the way. One will be paid if it is a Government contract but that has not happened here. Have the witnesses set up a group because I know there have been different meetings? I know we had the meetings in Carlow. Before we meet again, and we need to meet again, the witnesses should get a proper group together. They know the old saying. The more they stand together, the more meetings subcontractors hold and the more they get a group together to fight this, the better. They cannot do without this money and it is unacceptable. The witnesses should get a group together from here and work through this committee and all of us because I am here to give them 100% support. I think it is unacceptable in 2018. I have to say this because every day in the Seanad, we hear about how funding is there, the country is on track and building is back but if we cannot pay our own subcontractors, what are we doing? We need to address this. The Minister needs to be brought here. He would not have a meeting. I think he needs to have a meeting with the witnesses. Perhaps we could arrange it either through the Seanad or Dáil. We need to get the Minister in. The Minister needs to be accountable. Funding needs to be set up for subcontractors so that they get their money and their lives get back on track.
Regarding certification, the witnesses know that if they apply for another job, they must pay their taxes and have their certificate. How can they do it when they are not getting money from the Government, yet it wants them to pay taxes to Revenue? This does not add up. I am asking for a meeting with the Minister and that the subcontractors get together and form a proper group. Whatever road we have to take to fight this, I will give them 100% support. I thank the witnesses for coming before us today because it was very brave to come in here to a finance committee and tell it what is happening; this is the reality and the Minister and Government need to hear it and wake up.
To clear up a point raised by Deputy Doherty at the last meeting, I was dealing with the certification process in a lot of detail. Correct me if I am wrong but Mr. Cahillane told us that they could certify it because they had someone on the ground on all of the sites examining the work as it was being done. Is that right or wrong?
Although, Mr. Hennebry is accurate in terms of what he said, that is the impression. What the Chairman said was accurate because that is what they told us in the committee last week. Mr. Hennebry is also accurate because I have seen the role and regulation 3.5, which states very clearly that the role of the certifier is not to supervise the job. We have since heard a different line from the NDFA, which is that it will not use the independent certifier but will use new subcontractors to complete and certify Mr. Hennebry's work, which does not rectify the situation as that is still not allowed under the regulations.
Mr. John Hennebry:
Is that not another perfect example of the NDFA trying to sidestep? In respect of what the Chairman touched on, in its defence, the NDFA was happy to believe Carillion and KPMG to defend why it decided to go for this PPP decision. It is now happy that its certification is being carried out by what it says is an independent certifier who is employed to correlate. I have spoken to this certifier personally and he has been given extra money to carry out certifications as well as to just correlate so how is this guy independent if he is being given extra money to do our certifications? Those were his own words to me over the phone. How is this guy independent? I have to challenge that. If the NDFA is saying that KPMG and Carillion are not independent because of the investigation yet in its defence, it is saying this guy is independent but he is being paid, surely that is just hypocritical?
On the certification issue, it is my understanding that the person who did the work, be it steel or concrete work, is the only person who could actually certify the work. Nobody else could come in. If I did a job for the Chairman, he did not pay me and got Senator Murnane O'Connor to come in and do it and I was not paid, that would not be right. I would have to be the one certifying the work that I did.
This is from correspondence today. It states that a summary of the legal position as it understands it is outlined in the correspondence. It states that in signing its part of the certificate of compliance and completion, the assigned certifier will rely upon a number of ancillary certificates from others involved in the work. It states that while the majority of those ancillary certificates are available for the project, some are not. It states that for those work elements where the ancillary certificate is not available, the replacement main contractor will engage new third party subcontractors to complete any outstanding works for the relevant elements and to provide ancillary certificates covering both their own work and the work carried out by previous subcontractors from whom ancillary certificates are not available. This is from the deputy director, Mr. Cahillane. I find that totally unacceptable. Mr. Miley spoke about bypassing the subcontractors. The very purpose of this meeting is to ensure that subcontractors are not bypassed. It is to ensure that this type of legal position is not adopted. We want a very basic position to be adopted, which is to pay the contractors the outstanding amount of money they are due.
Mr. John Hennebry:
In respect of the statement touched on by Deputy Doherty the other day that I saw, Part D of the building regulations clearly states that no other person can be involved. It must be mixed and applied properly. We have to certify that so how on earth can a third party contractor, even if they know our trade or are specialists in the trade, know that my guys on site have mixed and applied products correctly? The contracts manager and quantity surveyor from my company know that my guys have mixed and applied products correctly. How on earth is that correct? It is completely wrong.
Mr. Mick Miley:
The note referred to the Chairman is a great indication of somebody with intent or somebody deliberately picking a route to avoid consultation or anything like that. That letter did not happen by itself. Somebody at the head of some table somewhere has given an instruction to find new certifiers, independent or otherwise, to get this thing rolling, get the three schools open, get good vibes back into the people and children and get completion at whoever's cost - it does not really matter. I think that is written proof of everything that has been said here today. It is so deliberate, it is-----
The long and the short of the discussions we are having here, and I would imagine everybody is on the same page, concerns how to get the subcontractors the money they are owed. That is the question. As a committee, we would not want to give some subcontractors leaving here today a false sense of security that they are going to get paid in a week's or a month's time. This committee must work out how best to get the money for them as quickly as possible. We could bring the NDFA back next week or we could bring in the Minister or this person or that person but that is only an engagement with a process. How to get them the money they are owed is the question. Does it require a legal process? That is the question I will be asking. As Deputy Burton mentioned earlier on, do we require legal advice? Is that the only road that can be travelled to secure the money they are owed?
We will seek legal advice from services here. While we are making no commitment except that we will do our best within our remit to satisfy the subcontractors because that is as much as we can do today, we will not let them down. Deputy Deering asked about the way to resolve this.
The way to resolve this is simple. It is to apply a bit of common sense to the work that was done and to acknowledge it. The Government should set aside a sum to pay the contractors. It is €14 million out of a spend in excess of €5.5 billion. As such, it is a small amount of money by comparison to what is being spent, but it is a significant amount to the contractors. We will be pursuing that course also.
I was going to say what was possible for any of the members of the Government involved in this, including the Ministers for Education and Skills and Finance, in particular, and, possibly, even the Taoiseach. This is a significant level of public works and we want the children, parents and teachers in the town get their school. However, we would also like the contractors to be paid. The responsibility is shared across government. The solution is to bring a memorandum to Cabinet to indicate that there is a recognition. I am not a lawyer, but the subcontractors as a group need good legal advice as to whether they can consider the courts as an option. This is possible for the Government, however, notwithstanding that it says it cannot touch the PPP process. We know that is not completely true from the UK experience, although it is a very strong legal mechanism. One of the responsible Ministers or the Government collectively could bring to Cabinet a memorandum to say the subcontractors' issues will be addressed. While they might not get 100%, they might get some contingency payments during the examination of what has happened to the various amounts that have been paid out but in respect of which they are at a loss and in danger of going under. The Government should act on a humanitarian basis but also on a reputational basis in circumstances in which providers should not be left out of pocket where the State is contracting for important services. That is the other issue the committee might put to the Government in a report.
I thank the witnesses for coming in and, in particular, for sharing their personal stories. I noted to Ms Kelly that it is not an easy thing because we are in this room and other people are watching. I am sure the NDFA is watching. The Chairman talked about a number of options for the committee, albeit we cannot instruct. There is a terrible mess here and the consequences are clearly wider than issues of hard cash. There are risks of job losses and risks to family businesses. We have heard the personal testimonies. The solution is simple. The NDFA must be assured that the works carried out meet the requirements of building control legislation. There is no way it can assure itself of that without the subcontractors certifying those works. The NDFA needs to revisit this and make it clear to Woodvale that the only way this can be done is by re-engaging with the subcontractors, having the works completed if they are not completed and getting the certification from the subcontractors. That will mean every subcontractor gets paid which will, in turn, bring an end to their financial and personal misery. It will take us until next week to put all this together, but if the NDFA is listening now, I urge it to waste no time engaging with Woodvale on that course of action.
the Deputy has covered all of the ground. As such, I repeat my thanks and that of the committee to the witnesses for attending to deal with some of the personal issues that face their businesses and families. It is not easy. I am from a small business background and understand full well how board meetings take place on the pillow at night and that is the way it is done. To suffer a setback like this is not easy to recover from. We will do everything in our power to assist the witnesses in every way we can. I suggest that when we meet next Tuesday at 2 p.m., we prioritise our consideration of this matter and, in the meantime, set in train all of the suggestions which have been made here. That will determine what steps we need to take as a committee and the steps the witnesses need to take. If it is necessary to come back to the witnesses again, we will. That is with the agreement of the commitment. Is that agreed? Agreed. I thank the witnesses again and those who travelled to be here in the Public Gallery.