Marcella Corcoran Kennedy (Offaly, Fine Gael)
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The knock-on effect of the collapse of the Sammon Group on small subcontractors who are owed significant amounts of money is very worrying. This case also highlights a more widespread problem in the operation of public contracts, in this case the National Development Finance Agency, NDFA, which contracted for the work on behalf of the Department of Education and Skills. We must question the manner in which public contracts are designed in respect of the apparent lack of protections for subcontractors who are retained by the main contractor to carry out works on public projects, particularly when the NDFA, with Enterprise Ireland, participated in a meet the buyer event to provide information on supply chain opportunities for small and medium sized, SME, companies, in effect encouraging them to avail of these opportunities.

The liquidation of the Sammon Group is very regrettable, particularly for the 200 staff and their families. However, given the number and size of the projects undertaken by Sammon in recent years, the fact that it employed only 200 people directly demonstrates its dependence on subcontractors to undertake most of the construction work on its projects. In my constituency, Sammon recently completed the construction of a brand new school at Tullamore College at a cost to the Government of more than €12 million. I am extremely concerned to learn that a number of subcontractors who worked on the school have been left out of pocket owing to non-payment by the main contractor. In one case, more than €40,000 is owed to a small contractor who spent many months working on the site. This contractor tells me he cannot sustain this level of debt and he will have no option but to cease trading. I have received a large number of representations from local contractors who have been left badly out of pocket by this particular contract and other contracts. History appears to be repeating itself. In 2010, Pierse Construction collapsed leaving subcontractors without payment. They had no option but to protest at the official opening of schools in counties Offaly and Laois, notably in Ferbane and Banagher where I was in attendance.

The Government has a duty to ensure that when large sums of taxpayers' money are being paid to the main contractor on public contracts, this money makes its way to the subcontractors who are carrying out most of the work. Most of these small businesses have secured specific lines of credit for the purchase of materials on the strength of their retention on public contracts. These small businesses are then unable to pay their staff and suppliers and the negative consequences continue. The Government is committed to investing in large infrastructural projects under Project Ireland 2040 and we must ensure this results in a positive economic stimulus for the local economy and that subcontractors are not afraid to avail of these opportunities on the basis that they may not be paid.

The construction industry was hit very badly by the economic crash. Now that it is recovering and the volume of work is expected to increase significantly in the coming years, it is vital that the State put in place better protections for subcontractors who are the backbone of our local communities. We have to look at the main contractors' track records on previous contracts before they are awarded further public work. If the main contractor has a poor track record of looking after its subcontractors, we must not continue to reward it with lucrative public contracts. Lessons must be learned from the past. From my discussions with contractors, some have suggested that the problem with the business model is that the contract is awarded to the lowest tender and subcontractors are left to bear the risk of non-payment by using their overdraft facilities to fund the work.

In additional, subcontractors have asked who will provide the warranty for the work already carried out if only part of the job is completed by whichever company has been awarded the contract to finish the jobs to ensure the affected schools are open in time for September.

Patrick O'Donovan (Limerick County, Fine Gael)
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I thank Deputy Corcoran Kennedy for raising this issue. Unfortunately, the issue has been raised on more than one occasion recently. It is not a new development and reflects poor payment practices in the construction industry generally.

Former Senator Feargal Quinn's Construction Contracts Act was developed in consultation with industry to address these poor payment practices. The Bill was introduced to Seanad Éireann in 2010 and received cross-party support in both Houses. It was enacted in 2013. The Act applies to all construction contracts entered into after 25 July 2016. Responsibility for the administration of the Act lies with my colleague, the Minister for Business, Enterprise and Innovation, whose Department has responsibility for prompt payment legislation. I understand this issue has arisen as a result of the transfer of responsibility within Departments and the movement of responsibilities from one Department to another.

That small and medium-sized enterprises were not in receipt of payments due on a construction project was unacceptable at the time of enactment and the same applies today. It must be acknowledged that the contractor in question had been awarded a number of public works contracts prior to its collapse.

This issue is not unique to public works by any means. It is more galling, however, when it arises under a public works contract since the State pays the contractor what the contractor is due when payment is due. The conditions of most construction contracts between construction clients and building contractors in the public and private sectors require that payments are made at defined intervals and that payment is contingent on work being completed to a predetermined standard. There is usually no contractual obligation on the main contractor to make payments to subcontractors because this is left to individual commercial arrangements that are contained in contracts. That is a fundamental point. The State and the awarding body, whether an education and training board or a board of management, do not have a contract with the subcontractor. It is the contractor that has responsibility to the subcontractor. I realise it is a moot point but it is ultimately one of the most important points.

The issues identified by Senator Quinn during the development of the construction contracts legislation highlighted an absence of formal contracts that set out the necessary commercial terms. In many cases this was exacerbated by sharp payment practices by some, even where a formal contract did exist. This was adverted to by Deputy Corcoran Kennedy.

The Construction Contracts Act imposes minimum terms on all construction contracts, whether written or oral, and provides the tools necessary to enforce payment. The tools include a maximum payment interval of 30 days and a requirement to honour payment requests within 30 days for subcontractors, a right of suspension for non-payment, and a right to refer a payment dispute to adjudication. The legislation also outlaws the practice of pay-when-paid provisions that were prevalent in most forms of subcontract.

While most of the interest from industry surrounding the Act was centred on the introduction of adjudication, it is the discipline that the legislation imposes on payments that would appear to be have been largely ignored. Arguably, the associated provisions are the most important but they require the subcontractor to enforce his entitlements proactively with the contractor in the manner prescribed in the legislation for payments that are due.

The Act does not cut across the normal rules for company liquidation or receivership, and so where this arises, there is no avenue for recovery. The magnitude of the exposure that many subcontractors face upon the insolvency of a contractor would not arise, however, if the provision for payments was insisted upon and the remedies available were exercised where payment is not forthcoming. The non-payment issues associated with the collapse of Sammon would suggest that subcontractors are not exercising the rights provided for in the Act. I know what Deputy Corcoran Kennedy has said. As was said by other Deputies last week, that is not always easy. This inaction is surprising given the welcome it received by all contracting tiers in the construction industry and the support it received from many Members of this House and the other House. I can appreciate a certain reticence to engage in the manner prescribed in the Act. Indeed, I know well why it is not happening. It is for fear of risking business. Subcontractors have to question whether it is worthwhile doing business with someone who is not complying with the law.

The matter was raised with me by two Fianna Fáil Deputies last week. I undertook to look at their specific issues. This discussion is part of a dialogue among people in the Department.

Marcella Corcoran Kennedy (Offaly, Fine Gael)
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Inspired Spaces was the joint venture between Carillion and a Dutch infrastructure fund. The joint venture won the contract to build and manage the schools. A Carillion subsidiary was engaged to build, which in turn subcontracted to Sammon. This means a number of steps are in place before we get to the level of subcontracting to the local small and medium-sized enterprises.

I wonder about due diligence. When the financial close on schools public private partnership, PPP, bundle 5 was signed off, the project and financing agreements were signed and all the conditions contained had been satisfied by all parties. That occurred on 22 July 2016. On 10 July 2017, less than one year later, Carillion issued a trading update warning that it had £1.15 billion in losses by June 2017. If this was revealed, how is it that there was no indication of it in July 2016 when the contract had been awarded? Surely some kind of red flag should have been raised.

I have received some information from the Department on the matter. Is it wise that the public private partnership companies in receipt of the tenders are not due payment for the construction of the schools until they are handed over? It is no wonder that all these subcontractors are expected to fund operations at local level. It is their overdrafts that are being called on to provide the materials and labour. It is grand for a contractor to get a contract if the company does not need to have overdraft facilities in place and can use those of a subcontractor. The real problem seems to be the fact that no funding is handed over until the school is completed. Where is the funding to come from if the main company, in this case, Inspired Spaces, does not have the funds in place to deliver on the project in the first place? That is a significant issue and warrants further examination.

Patrick O'Donovan (Limerick County, Fine Gael)
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I am not going to dispute any of the comments that Deputy Corcoran Kennedy has made. This matter has been raised not only by Deputies on this side of the House but by Deputies on the other side of the House as well. I note the attendance of the former Minister for Public Expenditure and Reform, Deputy Howlin. He was the Minister responsible for navigating the Construction Contracts Bill through the Dáil and Seanad.

Unfortunately, there is a limited culture in the construction industry that is not really acceptable. A remedy was introduced that was welcomed by all. It was understood that it would help to alleviate some of the problems. I experienced these problems in my constituency. A national school was held up for months, if not years, by such carry-on. To be honest, it is a cultural issue that needs addressing on several fronts.

I referenced that the Department of Business, Enterprise and Innovation has ultimate responsibility for the implementation of the Act as it stands. I am not passing the buck because this matter has been drawn to the attention of the Department of Public Expenditure and Reform on several occasions recently. There is a discussion group in the Department in the area of construction. We have to be mindful of the fact that existing laws and legislation cover contract law and they have to be examined as well. The contract does not exist between the awarding authority, whether the Department of Education and Skills, the education and training board or the board of management, and the subcontractor. The subcontractors contract with the contractor. Unfortunately, the Department, Government, education and training board or board of management do not and cannot manage that relationship.

This is not an issue we are trying to run away from. In fact, the previous Fine Gael and Labour Party coalition Government introduced the legislation as a remedy. Remedies are available. I understand the reason that people may be reluctant to exercise them. Deputy Corcoran Kennedy has raised a specific case with me and I will ask the unit within the Department that deals specifically with this matter to look at it.

Unfortunately, I do not have anything positive to say in respect of the matters tied up and to which Deputy Corcoran Kennedy has referred. Certainly, that applies to matters that have been dealt with. Deputy Corcoran Kennedy made a point, however, that we need to try to protect people in future, and I concur with that. What that remedy is and what Department will address it is something we will have to work out, if we can work it out.