Martin Mansergh (Tipperary South, Fianna Fail)

The Government is conscious of the difficulties encountered by many subcontractors in obtaining payment from main contractors for work undertaken. This is a serious problem affecting all parts of the industry. I know Senators from every part of the House are fully aware of the problem and of the need to take steps to deal with it. Specific cases in a constituency context have also been brought to my attention. I would be surprised to learn of any Senator who has not heard of a contractor or subcontractor not seriously affected by the issue and whose business and livelihood were not put at risk as a result.

We do need to address the issue and draw on many of the ideas contained in the Bill. Before taking its proposals further however, it would be advisable to consult with the industry and professional bodies to see what additional legal, procedural and technical measures will allow us to deal with these serious problems.

The Government is fully conscious of the importance of the construction industry in the economy. Substantial efforts are being made by the Government to maintain a strong public capital programme with projects in the pipeline all the time. This underlines the Government's determination not only to maintain and upgrade Ireland's infrastructure but also to provide real opportunities for the construction sector, both main contractors and subcontractors, to tender successfully for contracts.

Ireland continues to face challenging economic circumstances, both nationally and internationally. The Government is meeting these challenges by taking tough decisions to stabilise the budgetary position, repair the banking system, restore Ireland's international competitiveness and invest in the creation of new jobs. Nonetheless, the Government is conscious it must invest in the country's key infrastructure to position ourselves for economic recovery. Our Exchequer capital allocation for 2010 amounts to €6.43 billion. At 5% of GNP, this programme compares favourably with those of other EU member states generally. The main focus of the Government's capital investment programme is to ensure Ireland has the requisite public infrastructure to facilitate a return to growth, which will assist sustainable job creation in the longer term.

In addition, this construction activity helps to maintain much-needed employment in the present difficult circumstances. As well as allocating large moneys for the absolutely essential task of upgrading the national infrastructure, the Government has sought to achieve value for money in the operation of individual public sector contracts. In parallel with the public capital programme, the Government has been advancing its public sector construction procurement reform. The aim of this initiative is to achieve greater cost certainty at tender stage, better value for money and more efficient delivery of projects. Greater cost certainty at tender stage requires that projects are comprehensively designed before going to the market.

For service contracts, output requirements will also have to be fully detailed before tenders are sought. It is acknowledged the preparation of comprehensive designs prior to tender will require a major change of approach by all those involved in a project. However, this will lead to far fewer contractual disputes, particularly in regard to payments, as there will be less ambiguity about the value of the work that has been completed.

As part of the detailed implementation of the construction reform measures, several innovative forms of public works contracts and conditions of engagement for construction consultants have been developed for use by public bodies. These were published in 2007 after a detailed consultation process with the construction industry and the professional bodies which proved invaluable in settling the final form of contracts and conditions of engagement. These now form an integral part of the Government capital works management framework which has been developed to ensure the Government's key objectives for public sector construction procurement reform are achieved, that is to bring greater cost certainty at tender stage, reduce overall costs and help improve budget planning.

The Government is acutely aware of the difficulties being encountered by businesses at present. It is confident the fast-track dispute resolution procedure in the new public works contracts can alleviate problems when disputes arise regarding payment. The Government fully accepts that all businesses must be paid on time for works satisfactorily completed. In the present economic climate, it is vital that payments to all those in the supply chain are not interrupted by long, drawn-out disputes about payment, which may adversely affect the financial position of those concerned, especially small to medium sized construction firms.

As Senators are aware, contract procedures require architects, engineers and quantity surveyors to approve stage payments to contractors when work has been done to the appropriate quantity and quality. The contracting authority must always have the right to ensure that work is done to the required standard. No contracting authority should be required to pay for substandard work. However, the Government fully agrees there is a need for measures to be put in place to ensure firms are paid promptly for work and services satisfactorily delivered. The conditions facing the construction industry are difficult enough without unfair and unnecessary burdens also being placed on companies where payments are properly due but delayed to secure a cash-flow advantage.

While I commend Senator Quinn for preparing the Bill and bringing it before the House, the Government considers that there should be a process of consultation with the key stakeholders to explore the legal, technical and procedural issues in this very complex area. However, there is a need for as quick a response as possible to deal with the cash-flow problems the industry faces. The Government and the professional and industry bodies must work together in the consultation process we propose to determine the nature and scale of the problem and then move on to establish what changes in private sector contract terms should be made and how these can best be implemented. Therefore, I invite the Senator and the industry and professional bodies to contact the Department of Finance to start the consultation process. It is likely that other Departments may have a significant input as well and they will also be invited to take part in the process. This approach will allow us to explore and develop practical measures that can be tailored to meet the problems we face. The fact that they can be discussed and developed with the professional and industry bodies will be a major advantage in helping to ensure the resulting measures will be effective. There is a great deal in Senator Quinn's Bill which will be considered in the discussions I have mentioned as possible changes to contract practice.

As I stated, we must be careful about legislation in this very complex area and there are several proposals in the Bill which must be carefully examined before they could be put into law. My following comments are not intended to take from the Bill which, as I have stated, has a great deal to offer. However, we need to be aware of the pitfalls that could be encountered if we move too quickly without proper consideration. For example, many contract disputes are complex and the tight timeframe in the Bill of 28 days with an extension of a further 14 days by agreement may not be practical for disputes that require much longer periods to resolve. Above all, adjudication may bring about another layer of regulation for an industry already subject to a stringent regulatory regime and the House will agree we must be especially careful before we introduce new statutory requirements affecting contract procedures. The proposed Bill does not set a minimum value below which adjudication would not arise and there may be a danger that disagreements on cost would be referred to adjudication for a decision rather than the parties first trying to reach agreement themselves. This latter course may clearly be preferable in several circumstances and we cannot ignore it. Experience in the UK has shown that practical adjudication procedures must be carefully framed. For example, adjudication costs have become a major issue in that jurisdiction. It has emerged that a major disincentive for the use of adjudication has been the imposition of all costs on the party initiating the action, irrespective of the outcome. I understand this has led to several abuses and has required amending legislation to correct them. The question of adjudication costs is not addressed in Senator Quinn's Bill. This is also a major issue that must be resolved if we are to avoid the problems encountered by SMEs in the UK. Once again, these comments are not intended as criticisms, but serve to illustrate the intricacies of the legal and technical issues which must be examined before we consider legislation.

The new forms of contract introduced for public works in 2007 and made mandatory in 2008 include a dispute resolution procedure which could be of benefit in private sector contracts. This procedure amounts to fast-track conciliation and may have a stronger foundation to that proposed in the Bill, in that a bond is provided to protect payment if it should be overturned in arbitration subsequently. The bond is linked to a binding recommendation made by the conciliator. Furthermore, there seems to be greater flexibility regarding time allowed for a decision on disputes which permits complex disputes to be adequately addressed. This procedure is already operating to the benefit of both contracting authority and contractors and may also be of benefit were it to be applied in the private sector.

The tabling of the Bill provides the Government, the Seanad and the professional and industry bodies with an opportunity to consider what steps can be taken to address these serious issues. The Government is ready and willing to work with the relevant bodies in devising dispute resolution procedures which would be suitable for the private sector. I believe that when the discussions with the Senator and the relevant bodies begin, the proposals included in the legislation will be fully explored as well as other legal, technical and procedural issues, including the fast-track procedures, which are working well in public sector contracts.

To sum up, the Government is well aware of the difficulties being caused by the non-payment of sums due under private sector construction contracts and seeks to work towards a solution with the Senator and the professional and industry bodies. It is essential that we do not allow the resulting cash-flow problems to undermine the financial position of firms large and small and their ability to retain employment. To deal with the problem, the Government proposes that discussions begin with the industry and the professional bodies as quickly as possible and that the Bill be deemed to be read a second time this day five months. Accordingly, I commend the Government's motion to the House.