Dáil Éireann debate -
Wednesday, 1 Dec 2010

Vol. 723 No. 4

Adjournment Debate

Protection of Subcontractors

Deputy Pádraic McCormack

I thank the Ceann Comhairle for allowing me to raise this matter. I seek clarification where a main contractor carrying out State work on a school or for a local authority contracts part of the ground work to a subcontractor. In the event of the main contractor going into examinership, receivership or liquidation, what protection is provided to the subcontractor who has carried out the work on the site? For example, a main contractor may have worked on the school building and the subcontractor may do the ground work. When the main contractor goes into examinership, receivership or liquidation, someone is to be paid for doing the work. Either the main contractor, the school authorities or the school trustees are paid but the subcontractors who have carried out the work cannot get paid. A small landscaper doing work on the landscaping of the school site takes on the job believing it to be a blue-chip job because the Department of Education and Skills is involved. He thinks there will be no difficulty getting paid for his work.

However, when the main contractor goes out of business, apparently the subcontractor is not paid. This can cause great hardship down the line for small subcontractors. They may employ people to do the ground work on these sites and the subcontractors may employ up to 60 people but if they do not receive money for a €200,000 job, they will go out of business and all of the staff must be laid off. The same applies to a landscaper or a painter, perhaps employing ten people. If he cannot receive €10,000 or €20,000 for his legitimate work, he will go out of business with 12 people on the dole.

As happened in County Galway, local authorities give contracts to develop pitches or playgrounds. In that case the main contractor went into receivership, administration or liquidation. The subcontractor in such cases is not paid for his work yet the local authority pays the main contractor for the work. What provision can be made so that it can be determined that everything is in order before money is paid to the main contractor? The people who did the work on the project should get paid rather than the main contractor, who may have done very little work on the site. What provision exists in law? What investigation takes place to ensure the main contractor has not salted away his money or reinvested it? Subcontractors can be owed sums of money by main contractors, the Department of Education and Skills in the case of the school or the local authority in the case of work on pitches or playgrounds. It is hard for them, while awaiting payment, to see main contractors in big houses and travelling by helicopter or 4 x 4 vehicles passing their house every day.

A typical example of this occurred in the Taoiseach's constituency. The contract for two schools was awarded under public private partnership. It was part funded by the Department of Education and Skills. When Pierse Contracting Limited went into receivership, liquidation or administration, despite the fact that it was found to be viable by a leading accountancy firm, the subcontractors who carried out the work on those schools will not be paid. I could give the Minister of State many examples of this happening in my constituency. The examples I have given are hard cases. The knock-on effect is that the subcontractor goes out of business if he is not paid. For large or small subcontractors, who may be exposed to several hundred thousands of euro, they may have to close their businesses. Two years ago a subcontractor had 100 people employed and he now has 40 people employed. He will go out of business. The same is true of the small landscaper who had ten or 15 people employed. He is now down to himself and his wife, trying to keep ahead but still he has not been paid his money.

Minister of State at the Department of the Health and Children (Deputy Áine Brady)

I thank the Deputy for raising this matter on the Adjournment. The Government is fully aware of the importance of the construction industry in the Irish economy and equally aware of the difficulties being encountered by many subcontractors in obtaining payment from main contractors for work undertaken. The problem of non-payment within the construction sector is one which is readily identifiable but difficult to resolve. In seeking to alleviate this problem the Government is mindful to ensure the interests of the taxpayer are protected and that the best value for money is obtained when tendering for public capital works.

In terms of expenditure on public works, the Government has made substantial efforts to maintain its public capital programme in the current economic climate. Our Exchequer capital allocation for 2010 is still over €6 billion and by international standards represents a significant portion of Government spending. Our main focus is to ensure that Ireland has the requisite public infrastructure to facilitate a return to growth, which will assist sustainable job creation in the longer term.

The Government capital works management framework has been developed to ensure that the key objectives of the Government in regard to public sector construction procurement reform are achieved — namely, to bring greater cost certainty, reduce overall costs and help improve budget planning and project delivery. All of these reduce the costs and the risks facing the taxpayer who funds these projects.

Our public works contracts set out clearly that the State's relationship is with the main contractor. The main contractor is obliged to deliver the project and the State is obliged to pay the main contractor. If a contractor goes into receivership or examinership, then the provisions of company law apply. This is the case regardless of whether the client is a State body or is any other party, such as a private individual. If a State body has already paid the money it owes to a main contractor, and the firm goes into receivership or examinership, then that money comes under the control of the receiver or examiner. Company law prescribes how he may use that money. For example, one of his first obligations is to pay amounts due to employees.

If a main contractor goes into receivership or examinership before a State body has fully paid for work done then, in simple terms, company law dictates that the debt is still due. However, the debt is payable to the receiver or examiner, and can be pursued by him. The debt involved would be needed by him so that he, in turn, may fulfil his payment obligation under company law.

For as long as we are still obliged to pay the receiver or examiner for any amounts we owe to a main contractor then any other action could have adverse consequences for the taxpayer. For example, any proposal in such circumstances for the State to make direct payment to subcontractors or others would expose the taxpayer to the risk of having to pay twice for work done. Obviously we cannot open the taxpayer to the risk of having to pay twice.

However, there are some proposals in train which should prove useful in helping to avoid and deal with construction non-payment. The Deputy will be aware that on 19 May 2010 Senator Feargal Quinn introduced a Private Members' Construction Contracts Bill 2010 to the Seanad. In responding to the Bill, the Government supported the key elements and agreed to work with the Senator and to consult interested parties on the proposal.

The purpose of the Bill is to help address the issue of non-payment to construction sector subcontractors who have completed work on construction projects, whether in the public or private sectors. The Bill will create a regulatory framework for adjudication and resolution of payment-related construction contract disputes. The main purpose of the Bill is to provide a mechanism whereby prior notice of an intention to withhold sums from payments otherwise due to parties in a construction contract must be given, or else payments must be made in full. If payments are not made in full the party owed the money can suspend work on a project until payment is made in full. In addition, the Bill allows for an adjudication procedure to deal quickly with disputes about payments. The adjudicator's decision is binding and payment must be made to the party named in the decision. The Bill provides a remedy to parties operating at various levels under a construction contract when payments are not forthcoming down the supply chain.

Deputy Pádraic McCormack

Will the Minister of State give way for a question? When will the Bill come before the Dáil?

Deputy Áine Brady

It is in the Seanad at the moment.

Deputy Pádraic McCormack

Will it come before the Dáil in this session?

Deputy Áine Brady

I am sorry but I cannot say when it will come before the Dáil. Deputy McCormack will have to check with the Whips.

The Deputy will appreciate that this type of legislation is very complex and it is important that the final Bill is robust and effective. The Government recognises the good work the Senator has done in introducing the Bill and is working closely with him in developing appropriate amendments with a view to Committee Stage taking place in the Seanad before Christmas.

Our joint aim is to have a new system which will reduce the non-payment exposure of subcontractors and provide an effective remedy for them should non-payment occur. The Bill is being formulated with the aim of achieving this without placing an unnecessary regulatory or cost burden on the parties to the dispute, other parties involved in the project, or the State. We must strike the right balance between improving the position of construction subcontractors and safeguarding the position of the taxpayer.

Banking Sector Regulation

Deputy Thomas McEllistrim

With thousands of citizens currently in arrears on their mortgages and thousands more on reduced payments, is it not time to investigate better mortgage systems and devise a system for this country that will ensure a more stable and secure long-term financial environment for our citizens?

We all know the difficulties in the banks and the great lengths to which the Government is going to fix the problems in our financial institutions and to ensure that their essential services to the economy and the country are fully restored. However, it is incumbent upon us to look at the difficulties faced by mortgage holders who have suffered great uncertainty throughout this crisis. While there is an urgent need to help people in the short term we should also look to better long-term solutions for mortgage holders, the banks and the economy. While the current situation has required serious and immediate action in an effort to get the banking system working properly again, we must also look to the long term and develop a mortgage system for the citizen, who is more than just a consumer or customer. For the sake of our citizens we should look at how they can be best protected while at the same time devising a model that works for the banking system. When we finally see "normality" return, we need to ask ourselves if the system that has let us all down should be restored or whether the mortgage system should be reconstructed on a sounder, fairer and more stable basis.

One system that has been mentioned internationally is the Danish model. This is a system which has advantages and disadvantages but which has been seen to militate against the occurrence of negative equity. It has stood the test of time. The Danish model has withstood many tests since it was brought into existence after the great fire of Copenhagen in 1795. The Danish economy has experienced contraction but the resilience of its mortgage market means that it remains the best performing in Europe during the current crisis. There is no record of a mortgage bank defaulting on its payments in Denmark and some commentators have suggested that Denmark offers a model mortgage market in that it shows that there is a safe way to securitise home loans.

This is, apparently, mainly attributable to its legislative framework which has put great emphasis on the protection of the mortgage bond investor by imposing strict limits on the risk taking of the mortgage banks leading in turn to conservative lending practices. The strength of the system is low origination cost, the absence of sharp practice and complete transparency. Denmark's €490 billion mortgage bond market, the third largest after the United States and Germany has proved resilient during the global financial crisis.

At the core of the Danish system are seven mortgage banks that specialise in making mortgage loans. They fund their loans by selling bonds in the capital markets. The bonds are in all major respects identical to the mortgage loans they fund. What the Danes call the principle of balance means that every mortgage is instantly converted into a security of the same amount and the two remain interchangeable at all times. For example, if I borrow €200,000 for 30 years at a fixed rate, the loan would be placed in a large pool of 30-year, fixed-rate loans that serve as collateral for an equal amount of mortgage bonds held by investors. The mortgage bank would sell on my behalf an additional €200,000 of these bonds in the capital market and credit the proceeds to me. As I repay the loan, the mortgage bank passes along the payments to the bondholders in proportion to the amount of the total pool they own.

Mortgage banks are not exposed to interest rate risk from funding long-term assets with short-term liabilities. The Danish system is built on the principle of "match-funding", meaning that mortgages are funded with bond issues that have the same characteristics as the mortgages. Borrowers in Denmark can refinance by buying back bonds in an amount equal to their mortgage balance, at par or market, whichever is lower. When market rates go down they buy at par to take advantage of the new lower rate. When market rates go up, they can stay put, or they can refinance by buying back bonds at the depressed market price. They realise a capital gain in exchange for accepting a new higher rate on their loan.

The disadvantage is that loans are not priced for risk, so borrowers with poor credit are not served. Borrowers must also have a 20% deposit to put down. While house prices declined in Denmark during the crisis, negative equity did not become a problem because the great majority of borrowers had substantial equity in their homes when the crisis struck. That was a major reason the rise in defaults in Denmark was small and manageable.

The Danish financial system has been impacted by the worldwide loss of confidence in financial institutions and the associated liquidity squeeze. In 2008 the Danish Government guaranteed the unsecured creditors of all banks, including the mortgage banks. However, the guarantee did not include mortgage bonds, because it was not considered necessary.

There may be other systems around the world worth examining, but we should look to develop a system that will be of long-term benefit to our people and which ultimately would help to prevent the kind of crisis we are now experiencing. The Government, the Dáil, the Central Bank, the Financial Regulator and other bodies may have valuable insights to provide on developing a citizen-friendly mortgage model.

Deputy Áine Brady

I thank Deputy McEllistrim for raising this matter. As he is aware, the Government has taken a series of initiatives to ensure the financial environment is returned to the stability and security required to support the credit needs of businesses and households. One significant recent initiative was the publication of the report of the Expert Group on Mortgage Arrears and Personal Debt, chaired by Hugh Cooney, on 17 November. The report made recommendations on measures to assist in dealing with the difficulties created by mortgage arrears following on from an interim report published in July. The Government is committed to solutions that are fair and appropriate to the current circumstances of home owners. Accordingly, the Government accepted the group's recommendations and indicated a commitment to implement them without delay.

Some of the findings of the group are directly relevant to the matter raised by Deputy McEllistrim. For example, the recommendations were a balance of proposals to improve the situation for those in mortgage and personal debt difficulties and to best serve the national interest. In its research, the group found that approximately 90% of mortgage accounts are being repaid in accordance with their contracts, repossessions remain low and lender forbearance has worked well to date and the mortgage interest supplement provides an essential support for almost 18,000 borrowers. As interest is paid in full, the debt of borrowers in the scheme does not increase.

Broadly in line with the matter raised by the Deputy, the group noted that an examination of international practices suggest that Irish debt legislation needs to be modernised. With this in mind, I would like to turn to the Danish mortgage system referred to by the Deputy. The House may wish to note that the Danish mortgage system was hailed by the International Monetary Fund, IMF, in late 2006 as "highly rated" and one of the "most sophisticated" in the world. It is worth considering briefly how the Danish system actually works.

Under this system, all mortgages granted by credit institutions to home buyers in Denmark must be supported by an equivalent bond with a maturity and cash flow that matches those of the underlying loans almost perfectly. Most long-term finance in Denmark is provided through specialist mortgage institutions. Typically, borrowers who are owner occupiers can borrow up to 80% of the buying price, with repayment periods typically from ten to 30 years. The lending activities are financed through the issuing of bonds, which are sold on the open market. Every mortgage is instantly converted into a bond of the same amount and the two remain interchangeable at all times. This means that the borrower can withdraw from the mortgage not only by paying it off, but also by buying an equivalent bond at market prices. Since the value of homes and the associated mortgage bonds tend to move in the same direction, home owners should not end up with negative equity in their homes. Likewise, if home prices decline, the amount that a home owner must spend to retire his or her mortgage decreases because he or she can buy the bonds at lower prices.

Would the Danish system suit the Irish market? It is important to remember that the Irish mortgage market and the Danish mortgage system result from different historic circumstances. The standard of housing in Denmark is high, with approximately 2.6 million dwellings for a population of 5.4 million in 2005. This amounts to approximately two persons per dwelling. Owner occupied housing accounts for approximately 52% of occupied homes. The rate was constant for many years with a slight decline since 2000, in contrast with most other European countries where the rate of home ownership has continued to rise. However, Denmark has a highly developed co-operative private ownership sector. If this is included in the equation, the rate of owner occupied homes rises to approximately 60%. Co-operative private ownership means that tenants can set up private co-operatives to buy their apartment buildings from landlords who are willing to sell. Moreover, Denmark has a long history of regulating and subsidising the housing market. Most cities have rent control apartments that were built before 1991 and there are rent regulations based on subsidised non-profit housing based on cost calculations, not on market conditions or quality levels.

Without going into too much detail, there are significant differences between the Irish housing market and the development of the arrangements for financing house purchase in Ireland compared to the situation in Denmark. These differences mean there is no simple template from other countries for mortgage financing that can be translated directly into our housing market. Nevertheless, it is important that we continue to look strategically towards practices in our partner European countries and learn from their experiences. We can then refine our solutions to best meet the needs of Irish home buyers.

In this regard, I can assure the House that the Government will continue to implement the policies needed to restore the stability of the Irish banking system, thus ensuring that credit flows more easily in the market and potential home owners can get access to such credit. As Deputies will be aware, the Government has taken a number of substantial measures, including the deposit guarantee schemes, the restructuring of the financial services sector and the establishment of a new structure of financial regulation with an integrated Central Bank replacing the Central Bank and Financial Services Authority of Ireland, CBFSAI.

Health Services

Deputy Deirdre Clune

I thank the Ceann Comhairle for allowing me to raise the issue of long waiting lists for assessment and orthodontic treatment in the Cork region. Cork, which is in the HSE's southern region, has always had a difficulty in this regard, particularly in the past 12 months. I wish to pay tribute to Dr. Ian O'Dowling, a consultant orthodontist who died suddenly this time last year. He was a long-time campaigner for the improvement of orthodontic services for the individuals with whom he was dealing.

In general, the people who need this type of treatment are in their adolescent years. It is not always a matter of appearances. In many cases, the treatment is required for health reasons. For example, one could be in a great deal of pain. If teeth are not adjusted and repaired in the early years when their formation can be influenced, it can lead to long-term difficulties in adulthood. As such, orthodontic treatment is important for medical reasons and reasons of appearance.

Following a parliamentary question that I tabled, I received the latest figures for waiting lists in the southern region. At the beginning of October, the number of people awaiting assessment for orthodontic treatment was 3,455 and the average waiting time was 12 months. Children are not considered until they reach 12 years of age. The waiting list for category 4 treatment comprises 2,942 people who have been waiting 42 months. As such, the average amount of time someone who is older than 12 years of age must wait to be assessed and treated is 54 months according to my figures. This is four and a half years. A young individual would need to wait throughout his or her teenage years for orthodontic treatment. This is unacceptable.

In the past 13 months, Dr. O'Dowling has not been replaced. In his capacity as a consultant orthodontist, he regularly campaigned to increase services. Will the Minister of State outline what effect the moratorium on recruiting orthodontists has had on the extensive waiting lists? A great deal of hardship and distress is being caused to young people and their families. Will the Minister of State address the possibility of purchasing services in the private sector to deal with the waiting lists? The lists have become excessive and will never return to normal levels unless vacancies are filled. We need to ensure the waiting lists, particularly in light of their development during the past 12 months, are tackled if we are to revert to a situation in which we can provide young people with the treatment they need and deserve.

Deputy Áine Brady

I am responding to Deputy Clune on behalf of my colleague, the Minister for Health and Children, Deputy Mary Harney. The HSE's southern region provides orthodontic care to patients throughout counties Cork and Kerry. Patients are referred to the orthodontic service from primary dental services. Following referral, consultant orthodontists assess all patients from the age of 12 years. On assessment, patients begin their treatment, are placed on a treatment waiting list or are discharged, depending on their treatment needs.

The HSE identifies those patients who have a great dental health need and who will obtain health gain from the intervention. Prioritisation of care in this way ensures that public funds are targeted on those with the greatest clinical need. It also aims to ensure that treatment is provided in a timely manner by the orthodontic workforce. Urgent cases, such as patients with a cleft lip and palate, are treated as soon as possible. Other patients who qualify for treatment but whose treatment needs are less urgent are placed on the treatment waiting list.

At present, HSE south is experiencing particular challenges in providing orthodontic services. These are partly as a result of the untimely death of an orthodontic consultant and the unavailability of a consultant orthodontist and a specialist orthodontist who have been on maternity leave. The HSE south is addressing these difficulties. Locum arrangements have been put in place. The HSE has also tendered for the provision of orthodontic services in respect of a specific cohort of patients who have been waiting significantly long periods for treatment. It is hoped that these initiatives will improve the waiting times in Cork and Kerry.

Ambulance Services

Deputy John O’Mahony

I thank the Ceann Comhairle for choosing this subject on the Adjournment tonight.

The ambulance call centre in Mayo was originally located at the Sacred Heart Home in Castlebar. It was then moved to the Camp West site beside the fire station and then to St. Mary's hospital, on a HSE site. All of these moves and upgrades cost millions of euro to provide the vital emergency services for counties Mayo, Galway and Roscommon. The number of jobs has recently increased from 12 to 16 because of the additional demand. Hundreds of thousands of euro have been spent on training the staff. People were brought over from the United States to give the training courses, so enormous amounts have been invested.

This is the kernel of my argument. Although the staff has not been told anything yet directly by the HSE, there are indications on foot of an internal leaked document to the effect that the service being provided in Castlebar is to be transferred to Ballyshannon, which is a smaller centre with fewer people working in it. In other words, the number of control centres is to be reduced to two, which some might argue is saving money. However, I want a specific answer about what logic such a decision is being based on if this document is correct. I am loth to say this, but it appears that the proposed transfer to Ballyshannon is to come about because Donegal happens to have a Minister in the Cabinet and Mayo does not. Surely it is not being done to save money, considering all that has been spent.

Is this another death knell for services in Castlebar and County Mayo, with proposals already on the table to close Mayo General Hospital as a procurement centre for hospital supplies even though it made €2.9 million in savings last year and won numerous awards for providing the best and most efficient service in the country? In summary, I have two simple questions for the Minister of State. Are these rumours correct, and, more importantly, if they are, on what basis was the decision made?

My understanding is that more than 100,000 emergency calls come through the Castlebar centre at the moment, which is more than three times what the centre in Ballyshannon has to deal with, where fewer people are employed. Will it save money and why is this now being proposed after the expenditure on training and upgrading? Why is this proposal being reactivated? This was supposed to happen last January and it was postponed, suspended or whatever. I need to be convinced, given that this involves people who have families and have to pay mortgages, that this is not a political decision, and I want specific answers in that regard. Such decisions should be a thing of the past. Where stand the Government Mayo representatives on this, the Minister of State, Deputy Dara Calleary, and Deputy Beverley Flynn?

This is a really important issue and I have made note of some of the answers given so far this evening and in other Adjournment debates. I am asking for upfront decisions and if I and the people concerned are not persuaded that this initiative will genuinely save money, I will have to say that it stinks.

Deputy Áine Brady

I am responding to this Adjournment on behalf of my colleague, the Minister for Health and Children.

Ambulance control is an essential element of the structures needed to ensure that emergency ambulance services operate in the most effective and efficient manner. Internationally, for patient safety reasons, there has been a consistent move to greater centralisation of control functions. This enables more efficient use of ambulance fleet and personnel through the introduction of new technology, operated by staff dedicated to control and despatch duties, which in turn allows response times to be improved and the most appropriate service response to each call to be determined and despatched.

Prior to the establishment of the HSE, each health board had its own ambulance service, with a range of different regional control arrangements. In most cases these made limited use of technology and managed only those ambulance resources belonging to the health board concerned. The establishment within the HSE of a national ambulance service has enabled a major programme of reform and improvement to be commenced. This aims to maximise operational efficiency and provide a more responsive and appropriate emergency ambulance service.

The HSE, with the support of the Department of Health and Children and the Health Information and Quality Authority, has determined that the needs of the health service can best be met by the establishment of two ambulance control centres for the country. While the needs of the service could be met by a single centre, it is considered more appropriate to have a second centre in order to ensure that a backup capability will always be available.

One of these centres will be located in the east of the country, with the second in Ballyshannon, County Donegal. The project to establish a single control centre model has significantly advanced with the recent closure of Naas control centre and transfer of its functions to Dublin. A phased process of further change is planned during 2011 and this includes the control functions currently located in Castlebar being relocated to Ballyshannon in the first quarter of the new year. The HSE is engaged with staff representative bodies in relation to the planned changes.

The Minister is satisfied that these changes will enable the most appropriate ambulance resources to be despatched as expeditiously and efficiently as possible in the interests of provided a safe and high-quality service to the public.

The Dáil adjourned at 9.30 p.m. until 10.30 a.m. on Thursday, 2 December 2010.