Public Private Partnerships - Liquidation of the Carillion Group: National Development Finance Agency and the Department of Public Expenditure and Reform

I welcome Mr. Gerard Cahillane, Mr. David Corrigan and Ms Louise Mulcahy from the National Development Finance Agency. I also welcome Mr. Paddy Howard from the Department of Public Expenditure and Reform.

I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses 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. Cahillane to give his opening statement.

Mr. Gerard Cahillane

I will ask my colleague, Mr. David Corrigan, to make the presentation.

Mr. David Corrigan

I am pleased to be here this morning to assist the committee in its ongoing consideration of the role and operation of the NDFA, with particular reference to the impact on Irish infrastructure projects from the liquidation of the UK Carillion Group and also the role of the Dutch Infrastructure Fund in that regard. I am joined by my colleagues, Mr. Gerard Cahillane and Ms Louise Mulcahy.

On 3 July, in advance of the NDFA's appearance before this committee, we provided briefing material to the committee members, which outlined the NDFA's mandate and exposure to the UK Carillion Group. This exposure was confined to the NDFA's role as procuring authority of the schools bundle 5 public private partnership, PPP, project that comprised six facilities - five replacement schools and one replacement institute of further education. The tendering process and financial, technical and legal due diligence conducted in respect of schools bundle 5, including funders and equity providers, were addressed. The position at that point regarding the completion of facilities was also outlined. The contractual structure included in the original briefing note is reproduced in Appendix 1 for ease of reference. In summary, the PPP contract is between the NDFA, acting as authority for the Department of Education and Skills, and the Inspired Spaces consortium, PPP Co, that is represented by the Dutch Infrastructure Fund, DIF. I will provide an update on the current status of the project shortly.

During the course of the NDFA's last appearance at this committee, and the subsequent meeting of the committee on 5 July, on the topic of contractual arrangements for public sector infrastructural projects, a number of issues were raised. We have categorised the issues into three broad categories.

First, matters of certification, compliance with building control regulations and the role of the assigned certifier have been debated. The NDFA is in ongoing discussions with DIF and the assigned certifier to ensure that all necessary building control certification will be available to secure a valid certificate of compliance on completion, and allow the schools to be opened and occupied in compliance with the building control regulations. DIF, in turn, is engaging with its counter party, Woodvale, the contractor appointed to the completion works on this matter. As part of this work stream, DIF, together with its subcontractor, Woodvale, and the assigned certifier, are developing alternative methodologies for satisfying the building control certification requirements to cater for the event that agreement cannot be reached with some or all of the existing subcontractors, both to complete the outstanding work and to provide any outstanding building control certification. Our legal advice, shared with the committee previously, and the current assessment of the assigned certifier for the project is that this is a valid and viable approach.

Second, concerns have been raised by a number of subcontractors to Sammon Construction Ireland Limited with regard to outstanding payments for work that was undertaken. Clearly, this is a very difficult and distressing position for subcontractors given that their counter party, Sammon, that has already been paid for the work, is now in liquidation. As set out in our earlier briefing note to the committee, the State is not and was not party to any works contract with these subcontractors. These appointments were private commercial contracting arrangements that were subject in most cases, we expect, to the provisions and protections of the Construction Contracts Act. Notwithstanding that, we are not a party to the subcontractor negotiations or agreements. As stated earlier, the NDFA has relayed to DIF the concerns expressed regarding payments due to Sammon subcontractors and supply chain. We understand that DIF has had this discussion with Woodvale that will endeavour, where possible, to reach agreement with subcontractors in the existing supply chain to complete the work and certification process. We encourage those subcontractors to participate constructively in this process.

While DIF and its counter party, Woodvale, will endeavour to reach agreement with existing subcontractors, where possible, they have made it very clear that they cannot accept a position whereby they must use the existing subcontractors, including resolving the amounts being claimed for work done by the subcontractors but not paid by Sammon. On this point we also note that a meeting took place between representatives of the NDFA, the Government's Construction Contracts Committee and a number of the existing subcontractors on 24 July.

Lastly, points have been raised about due diligence and recourse to Carillion's auditors, KPMG. As outlined in briefing material previously, the NDFA carried out technical, legal and financial due diligence of the Inspired Spaces consortium and its members prior to the appointment of the consortium, as preferred tenderer, and prior to the contract award in 2016. In carrying out the financial robustness assessment, the NDFA reviewed and assessed the adequacy of Carillion's financial robustness and its ability to undertake the obligations under the PPP contract.

In terms of the specific query as to whether the NDFA should sue KPMG, as auditors for Carillion, at this point the preliminary advice received is that there does not appear to be a viable basis for a lawsuit. As no direct loss has yet been incurred by the State under the terms of the NDFA's contract for the project, and the State has no contract or link with the auditors in this matter, it is likely to be difficult to demonstrate sufficient grounds to justify a legal action. However, we note that following the collapse of Carillion in January 2018, the UK's financial reporting council undertook to investigate Carillion, and KPMG's audits of same, from 2014 to 2017. We await the outcome of the investigation. The Financial Reporting Council, FRC, is the regulator of chartered accountants in the UK where the audit was performed and, therefore, is the most appropriate body to review the adequacy of the audits in this case. These points have been addressed in greater detail in our separate response to the committee's request of 18 July, and submitted on 24 July.

The following is an update on the current position. As previously advised, following intensive efforts on all parties in the intervening months, as of 25 June 2018, an announcement was made that Dutch Infrastructure Fund, DIF, and the project lenders were putting in place arrangements for the appointment of replacement contractor, Woodvale, to facilitate the completion by the end of August of the three most advanced schools, namely, Loreto College, Wexford, Coláiste Ráithín, Bray, and Ravenswell primary school, Bray. Survey and preliminary work at the other three buildings in the bundle, namely, Tyndall college, Carlow, Carlow Institute of Further Education, and Eureka secondary school, Kells, was also to be undertaken during the summer and will provide a detailed scope of works to enable the contract arrangements to be finalised for the completion of these schools by the end of December. This arrangement was formalised on 2 July and site works commenced on 9 July.

On 16 July, a number of the project sites were subject to pickets placed by certain subcontractors of Sammon Contracting protesting over outstanding payments at the time of Sammon's liquidation. Construction works temporarily ceased. On 18 July, PPP Co secured a temporary High Court injunction preventing the subcontractors from blockading or trespassing on the project sites. This was on the basis that the protestors have no legitimate claim against PPP Co and are not entitled to prevent workers from completing the works. As of 20 July, Woodvale has recommenced work on the first three sites. Progress continues to be made on all outstanding issues, which include arrangements for the completion of the remaining schools by the end of December and the appointment of the facilities management provider.

My colleagues and I will be happy to address questions relating to this matter.

I thank Mr. Corrigan and invite Mr. Howard to make an opening statement.

Mr. Paddy Howard

I should first explain that the Department of Public Expenditure and Reform is responsible for the development of the public private partnership policy framework. In that regard, an interdepartmental group was established in 2017, which comprised Departments and agencies with experience of using public private partnership to deliver capital infrastructure, to review that experience and report to the Minister for Public Expenditure and Reform with recommendations on the future role of PPPs in the context of the new ten-year national development plan. The key findings and recommendations of the review have already been published in the national development plan, NDP, and a copy of the relevant section has been circulated and was appended to our Secretary General's response of 23 July. To give a quick update on the current position. Since the Secretary General's letter was circulated, the Department published the full review on our website yesterday evening. As such, the analysis that informs the conclusions included in the NDP is now available.

The main outcomes of the review can be summarised as follows. PPPs should continue to feature as the procurement option available to the Government for projects which demonstrate value for money over a traditional procurement option. Value for money should be the deciding factor, which is an approach recommended by both the International Monetary Fund, IMF, public investment management assessment on Ireland and the PPP review we conducted ourselves.

This arrangement will apply to all new PPPs but will not affect PPPs which have already been announced and are in planning and procurement, that is, those projects that are being pursued under phases 2 and 3 announced in budgets 2015 and 2016, respectively. Post-project reviews, which were undertaken for all PPPs, will be published. This recommendation has already been implemented by Circular 06/18 of 26 March issued by the Department. Consideration is also being given to the development of a new alternative PPP model to complement the existing model. Such an option could comprise a less complex and shorter-term alternative PPP-type contractual arrangement that could facilitate greater competitive tension in the procurement process, as it would open the PPP market to smaller domestic contractors.

Regarding Carrillion, the main priority now is to resolve the operational issues and ensure the relevant schools are brought into operation as soon as possible. Responsibility for those operational issues rests with the Department of Educational and Skills and the National Development Finance Agency, NDFA. Clearly, if points emerge from the policy framework in that process, they will be addressed in due course. Consequently, the NDFA will take the lead in this engagement.

Go raibh maith agat, a Chathaoirligh. Fáilte roimh an NDFA arís go dtí an coiste and this time we are joined by the Department officials. Did Mr. Cahillane watch, or read the transcripts of, the testimony given by the victims of the Sammon Contracting collapse to the committee, during which they gave their personal stories? One person recounted that he could not get out of bed for a week as a result of the position in which he found himself, another spoke of having equipment worth €250,000 in a school to which the company could not get access. Others spoke about tension in homes and parents not being able to retire. Did the witness watch that testimony or read the transcripts later?

Mr. Gerard Cahillane

I read it.

As the person responsible for the agency that has to sign off on the works carried out by the subcontractors and is refusing to do so, what would Mr. Cahillane say to those individuals?

Mr. Gerard Cahillane

It is a very regrettable situation and we have huge empathy for those people. The fact of the matter is that we have a contract with a PPP company and are contracted to pay the PPP company fully for the full cost of this contract. The State cannot pay twice for these facilities.

I understand what the witness is saying. Since the committee hearings, I have been contacted by numerous other contractors. The numbers vary but the financial impact on some has been €20,000, which is sufficient to put them out of business. Others have informed me that they have taken a hit of more than €750,000. There is then everything in between. When one hears the stories about the products they have, whether it is furniture in the schools or materials such as floor coverings or the paint on the walls, is it not the case that the State could be accused of handling stolen property? While the State did not do the damage or stole the material from the subcontractors and took it without paying, it is satisfied to handle the material in the knowledge that blood, sweat and tears went into creating the blocks and mortar that built the schools, the chairs that students will sit on and the paint that decorated the schools, none of which have been paid for? Is there not a moral question for the State, particularly for the NDFA, which is coming up with a system to allow certification of work that only the contractors can, in many cases, certify?

Mr. Gerard Cahillane

The position of subcontractors in Ireland, the United Kingdom and other jurisdictions has been the same for the past 40 or 50 years. The subcontractors are in a very difficult and unsatisfactory position. The recent legislation by former Senator Feargal Quinn, the Construction Contracts Act 2013, has helped and limits the exposure subcontractors have to their main contractors. However, it is not bulletproof, as I stated previously in this committee.

I come back to the key question that has been put to me about the State handling stolen goods, which is the way this was phrased. When one looks at this issue, one can see some parallels. A company provides €750,000 worth of equipment and the State says this was supposed to be paid for by a liquidated company and the matter is one for the supplier company and the liquidated company to resolve. However, the State will benefit from the fact that the desks and other materials worth €750,000 are in the schools. Are we not complicit in a system that is handling stolen goods, which have not been paid for, whether it is desks or chairs, football pitches, floor covering, paint or the bricks and mortar that built the walls of the schools?

Mr. Gerard Cahillane

Two points arise. The State will pay in full for these facilities and equipment. The arrangements between the subcontractor and the main contractor is a private commercial arrangement between those two entities and we do not step into those arrangements.

I recognise the NDFA is not at fault here, and I am sure my colleague will tease out some of the oversight issues in terms of Carillion and Sammon. The National Development Finance Agency and the State can step in and this goes to the nub of the issue. Mr. Cahillane, on behalf of the NDFA, confirmed to me the last time he appeared before the committee that the NDFA has to certify that the works are to the relevant standards. What the NDFA is now doing - perhaps not Mr. Cahillane personally - is trying to find a way to circumvent the regulations to allow for these works to be certified in a way that they cannot be certified.

An inspector who was not present when the works were being carried out cannot certify that those works were carried out to the standard required in the legislation. The problem with that approach, Mr. Cahillane, is that it allows for the contractor to shaft the subcontractors. Let me put a different approach to you. On behalf of the NDFA, you should go back to the code of practice for inspecting and certifying building works. The regulations state very clearly it is those who installed the materials, those who developed the works on the ground, who must certify those works. Therefore it is up to you to find a way to do that. The way to do that is to pay the individuals who carried out the works. Is that not the best approach that will clarify this issue for everybody?

Mr. Gerard Cahillane

The certification process is a statutory process and I assure the Deputy we are not circumventing that. After the last meeting, we sought legal advice and provided a summary of that legal advice to the Deputy. We could not provide the legal advice itself because it is privileged. Deputy Doherty, or one of his colleagues, mentioned that there is a threat of a legal case against the State in this regard, so we could not provide the full legal advice. We are happy that that legal advice is correct. While anybody can take a case against the State, we believe the chance of such a case succeeding is weak.

There is a second point I want to make regarding that process. When we enter into a contract under the PPP code, we are transferring that risk to the private sector to manage. The taxpayer pays for that risk. It is not reasonable to expect the taxpayer now to take back that risk and pay for it again.

It is not; what I am putting to Mr. Cahillane is not for the taxpayer to do that at all. The Dutch Infrastructure Fund, DIF, which is funding this project, needs to be told that the only way the NDFA can certify the works done on these schools is by the subcontractors certifying their work, as laid down in the statutory code. It is up to them to engage the subcontractors and find a way. Obviously, from the point of view of a subcontractor, that will mean: "First of all, would you pay us for the works and then we'll certify them?"

Mr. Gerard Cahillane

DIF has also taken legal advice in this matter. It has put a lot of money into this, as have funders put money into it. They have not been paid a penny and they will not be paid a penny until these facilities are certified within the statutory rules.

The NDFA is creating a system that allows for certification without the input of the subcontractors. If I was the DIF, without morals, of course I would do what it is doing. That means it can shaft the business down the road for €750,000, or the security firm for €20,000, or the painting firm for €76,000, and so on, without any concern that, more than likely, many of these family businesses will go to the wall because the NDFA has created a system that allows for certification without their input. Do not allow that to happen.

Mr. Cahillane said he provided a summary of the legal opinion, which he did. It was a vague summary, in broad brush strokes, although I do not expect the detailed legal advice to be given to this committee. The witnesses made the point that this is a statutory code. We are the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach. Can the witnesses point to anything in the statutory code that allows for certification without any input from the subcontractors, where the subcontractors are available to give that input? In which section of the code is that contained?

Mr. David Corrigan

I cannot point directly to that. The contractual, legal and statutory responsibility for the process is with DIF. It is a statutory process which culminates in validation of the certification by the assigned certifier.

I am sorry to interrupt. DIF has absolutely nothing to do with the statutory codes established in the Houses of the Oireachtas. DIF did not exist when those codes were developed. The NDFA is allowing for this to be circumvented, so I want to ask the witnesses, very clearly, what page, what line, what paragraph allows for these certifications to be given without the input of subcontractors where the subcontractors are available to give that input?

Mr. David Corrigan

I cannot point to a specific line. I know our legal advice, and the advice of the assigned certifier who has the statutory obligation to sign the certificates, namely that this alternative approach, if it is needed, is a valid and viable approach. It also has to be validated by the building control authority. We do not see a situation where there is any circumventing of the rules, or the statutory process. There have been no shortcuts. There can be no shortcuts because it ends up with the building control authority validation. We have been very clear with DIF that this has to be done properly. It has to do it properly, by law.

Let me just finish on this point, and one other small point. I can point to sections in the code that state that the subcontractors have to certify their works. That is the reason there is such a robust code. They are the only people who can do this. The witness cannot point to anywhere in the code that says that this independent inspector can do exactly what the NDFA is doing, which results in these subcontractors being shafted in the way that they are going to be shafted.

Mr. David Corrigan

I spoke to some of the subcontractors earlier on this week. They were very clear as to their concerns. Their concerns echoed the concerns that were raised at the committee a couple of weeks ago. I took those concerns away and flagged them. The NDFA has raised those concerns with DIF and with the NDFA's legal team again, and with the assigned certifier. It is a very valid point. This must be done properly, it must comply with the code and the regulations and it has to be validated by the building control authority. I can assure the Deputy that that will happen on these projects.

We are dealing with the collapse of Carillion and the collapse of Sammon. We are now dealing with schools that have not opened. We all want those schools finished. We want our children in those schools. We want the teachers in those schools. We want the schools to be a safe environment, with the subcontractors signing off on them and being paid for the work that they did.

Let me talk about schools that have been opened. I have written to Mr. Cahillane. I presume he saw my letter of 16 July on the Portlaoise projects. Portlaoise schools are open. Can he tell me who certified lifesaving equipment in that school? Who certified the gas detection system? Who certified the ventilation system? Who certified the fire dampers system? This is another Sammon school where the subcontractor has been shafted. No certification was given for those life-saving measures. I want a direct answer here. There have been hundreds of children in these schools without fire certification or without gas detection certification from the installer. This is crucial. I expected a response back from the NDFA before this committee sat. There is a full list of certifications that was not provided. Was the same thing done with the Portlaoise project as it is now proposed will be done with this bundle, bundle five?

Mr. Gerard Cahillane

We did reply to the Deputy's letter. The Deputy may not have received it.

I have not seen it, no.

Mr. Gerard Cahillane

We explained that this was not one of our projects. It was procured by the Department of Education and Skills directly. We are not involved in that project.

This is a building control issue. Had the NDFA no responsibility?

Mr. Gerard Cahillane

No.

This is an issue with the Department of Education and Skills, or the Department of Housing, Planning and Local Government. From a departmental procurement point of view, is the Department aware that there is a school that was occupied by hundreds of children that does not have certification for gas detection, or fire dampers certification, from the installers?

Mr. Paddy Howard

We do not have an operational role in respect of the delivery of projects. Typically, we would only know details of projects if a particular issue or agenda arose. For example, the Vote section of our Department engages with the Department of Education and Skills and if a particular issue that required additional scrutiny arose, then it might become involved. However, I would not expect our Department to be doing so habitually. The management of these projects is a matter for the Department of Education and Skills. It has a section which deals with these matters and that is where certification or any kind of detailed management of projects would take place.

I thank the witnesses for their presentations. I am not sure if they completely understand the extent of this problem and how it has put thousands of jobs at risk. One contractor directly employs 45 people and has 100 subcontractors. All of those jobs are lost to this economy never mind the personal circumstances that have been outlined previously. The witnesses stated that they empathise with the people affected. Empathy is not good enough because these people cannot go to the banks to pay their bills and do everything else that they need to do. These are family businesses that are now being run by a second or third generation. I do not think it is good enough for people to abdicate responsibility. This meeting has been convened because Members want to get to the crux of the matter and find a solution.

How was the new contractor, Woodvale, selected?

Mr. Gerard Cahillane

It was selected by DIF. The PPP company selected it. We have nothing to do with the selection of Woodvale.

Does the NDFA have nothing to do with the selection?

Mr. Gerard Cahillane

Correct.

Does the Department have nothing to do with the selection?

Mr. Gerard Cahillane

Correct. It is a private matter between-----

How many contractors were assessed when Woodvale was successful?

Mr. Gerard Cahillane

DIF ran a competition and three contractors were assessed.

Is there a legal impediment which prevents the Department from instructing Woodvale to take on the previous contractors and suppliers? Is there something that prevents Woodvale from doing so?

Mr. Gerard Cahillane

There is nothing to stop the company employing whoever it believes to be best suited to deliver the schools.

Could the Department or DIF instruct Woodvale to engage with the subcontractors and the subcontractors who have supplied materials and done work?

Mr. Gerard Cahillane

Senator, the company was pointed in that direction but we cannot compel it to engage the subcontractors who have not been paid.

Is there anything that prevents the NDFA from compelling Woodvale?

Mr. Gerard Cahillane

It is a private arrangement between a contractor and a subcontractor.

Is there anything that would stop the NDFA from inserting a clause?

Mr. Gerard Cahillane

There would be issues for us in that we would take risk back on to the State's books.

Does Mr. Cahillane not think that thousands of jobs being lost across the economy is a risk-----

Mr. Gerard Cahillane

Yes.

-----to the whole economy and to the State? These efforts on the part of the State to try to be one, two or three steps removed from matters of this nature are not good enough.

Mr. Gerard Cahillane

The construction industry operates in this fashion. It has done so for the past 50 years in this jurisdiction and in others.

The European Directive 2014/24/EU provides that subcontractors can be paid directly by the contracting authority. Do the witnesses agree that such an opportunity existed?

Mr. Gerard Cahillane

In terms of our situation now, our contract is with the PPP company that engaged the contracting company.

At the time, there was provision in member states for subcontractors to be protected-----

Mr. Paddy Howard

I am not aware-----

-----within the procurement process.

Mr. Gerard Cahillane

We have no direct relationship with subcontractors. Our priority is getting the-----

Who would have had responsibility in this area when the EU directive was transposed into Irish law and recognised here? We have a responsibility to implement the provision not in respect of multinationals but also regarding small indigenous businesses that are the backbone of our economy. Who examined the EU directive in order for us to transpose the provision into Irish law and create protections?

Mr. Gerard Cahillane

It sounds like a policy matter for the Department of Housing, Planning and Local Government. Perhaps Mr. Howard can answer.

Mr. Paddy Howard

I suspect so. I am not aware of the individual directive. Yes, an individual Department would transpose the directive into law.

Which individual Department assessed the matter?

Mr. Paddy Howard

I am not aware of the particular directive.

The committee meets witnesses all of the time to discuss matters but nobody takes responsibility. When a directive lands on somebody's desk - or a number of people's desks - surely to God it is scrutinised in order to discover what must be done in Irish law that will protect both jobs and the subcontractors who are the backbone of the economy. It seems as if someone has decided to let the opportunity to pass, which makes me really angry.

Mr. Paddy Howard

I may not have been clear in my response. It certainly is somebody's responsibility but it is not an issue. I am here because our responsibilities include the PPP policy framework. That is not an issue we would have addressed in that context.

Does Mr. Howard agree that a provision exists that if the State wanted to set up a system-----

Mr. Paddy Howard

I have not seen the provision. I suggest that the Senator provide the details in order we can look into the matter.

I ask that the Department to consider the matter. The Government has been negligent in not transposing the provision into Irish law in the way that it should have been in order to protect subcontractors. The subcontractors here should consider the matter, in terms of taking a legal case against the State.

I have a few questions on the audit process and due diligence. Is it correct that NDFA was responsible for carrying out due diligence?

Mr. Gerard Cahillane

Yes.

The NDFA got the Carillion accounts that were endorsed by KPMG and all of that. I see that the response given was that a legal case could not be taken against the audit company.

Mr. Gerard Cahillane

Yes.

In spite of the rulings that have been made before - I am not only talking about KPMG because obviously Carillion had internal auditors - all of the auditors agreed with each other about Carillion. When the NDFA was carrying out due diligence, did it analyse the fact that Carillion was completely dependent on PPPs? Carillion was basically robbing Peter to pay Paul. Do the officials from the NDFA think that should have been considered when due diligence was being carried out?

Mr. Gerard Cahillane

We rely on two things, in respect of due diligence. First, the audited accounts, which is the most independent recognised assessment of a company's trading ability. Those audited accounts clearly told us that the company had a turnover of between £5.5 billion and £6 billion and had between £600 million and £700 million in cash. It was trading profitably and there were no issues with regard to it being a going concern. As Carillion was listed on the Stock Exchange, we carried out research in that area. There were no red flags highlighted for us in respect of the company.

The big four accounting firms stood over the accounts of all of the banks that subsequently led to the banking collapse. Do the Government and its agencies still take what is said by the audit companies as being accurate and true?

Mr. Gerard Cahillane

As the Senator may be aware, there is an investigation into the audits carried out by KPMG in the UK in respect of Carillion. There are three investigations. There is a Stock Exchange investigation into Carillion and there is a pensions investigation into its conduct. We will certainly look at the findings of those investigations to see if we can learn something from them.

Do the witnesses think that a similar investigation should take place in this country?

Mr. Gerard Cahillane

KPMG in the UK audited the accounts of Carillion, not KPMG Ireland.

In terms of the relationship, I ask that this committee recommend the referral of the statutory audit market to the Competition and Consumer Protection Commission. We must stop the nonsense that is going on with these audit companies.

Such companies are many steps removed from the people described by my colleague who appeared before us earlier and are broken people because these big audit companies give advice and endorse companies and we follow along. We pay the money for this. As a Government, we pay them to give us that ridiculous advice on many different companies. It seems like we have not learned anything from the banking collapse and the relationship between the banks and the auditors.

Mr. Gerard Cahillane

For the record, we have not paid KPMG for these audits. Carillion and the various companies pay the auditors directly to provide the audited statements.

They pay them for the audited statements. When they pay them, even that relationship itself, in the absence of independent audited advice-----

Mr. Gerard Cahillane

It is a regulated industry and it is up to the regulator to ensure that the standards are appropriate.

A Chathaoirligh, can we look at this as a finance committee? I believe we have a responsibility.

We can take the proposition and can deal with it separately.

If we can, please. Can the witnesses please correct or guide me regarding the public service benchmark that was used? In bundle 3, the public service benchmark was €177 million and for the PPP, does it turned out at €411 million over the 25 years. Is that correct?

Mr. Paddy Howard

To be clear, my Department does not have an operational role in respect of these matters; we set the policies. The preparation of the public sector benchmark is done by the Department that is sponsoring it in consultation with the NDFA.

Has the public service benchmark for bundle 5 been released?

Mr. Gerard Cahillane

Not for bundle 5 but we have released it for bundle 3, to which the Senator referred.

On those figures, was it €177 million for the public service benchmark-----

Mr. Gerard Cahillane

They do not sound correct but I will come back to the Senator on those figures.

Mr. Cahillane should do that on those two figures.

Mr. Gerard Cahillane

In respect of bundle 3.

Mr. Gerard Cahillane

The figures are not released yet.

When will they be released?

Mr. Gerard Cahillane

They will be released within two years of the facilities being delivered.

What is the capital value of the school bundle 5?

Mr. Gerard Cahillane

Just under €100 million.

What is that value over 25 years?

Mr. Gerard Cahillane

Those figures are confidential. I am happy to give the Senator the capital value, which has been released. The contract value, which is what the Senator is asking for, is confidential for the next two years.

Surely people need to know how much they are paying. Mr. Howard talked about value for money earlier on, the taxpayers' money, and citizens' money that is being used.

Mr. Gerard Cahillane

All of those figures are available to and audited by the Comptroller and Auditor General. For commercial reasons, they are not released to the public until about two years after the facilities are delivered.

We hide behind commercial sensitivity again-----

Mr. Gerard Cahillane

Just for a period of time.

-----as we do with so many of these things, which I believe is totally off. While I hope we can have another round of questions, I will finish with what I believe to be important point on the problems that are being caused as matters stand, with students being expected to sit in schools and the Department of Education and Skills abdicating responsibility on the issue of stolen property. Unless we address this issue now collectively, students will be going into schools in September where they will be using equipment, sitting on seats and so on in buildings that have not been paid for.

Mr. Gerard Cahillane

As I stated earlier, the State is paying for these facilities. It has a contract and has to pay PPP Co in respect of these facilities.

If I supply or sell Mr. Cahillane something, there is no point in paying somebody else for it and saying it is paid for. I would not have received my money. Something is not paid for until the person receives his or her money.

Mr. Gerard Cahillane

The issue here is with the subcontractor and Sammon Contracting, with all due respect.

With regard to Sammon Contracting, Mr. Cahillane said earlier that Carillion were paid up to 31 December. Does that mean that everything, including, for example, materials supplied on 29 December were paid for?

Mr. Gerard Cahillane

Yes, and I will explain. This project is being funded by two banks and by private equity. By the end of December of last year, they had paid up all of the equity and all of the debt was paid into PPP Co. We are absolutely certain the money did flow down and a fraction over 98% of it was paid to Sammon Contracting by the end of December 2017.

All was paid to Sammon Contracting, everything that was supplied was paid for-----

Mr. Gerard Cahillane

There were some management fees but the bulk of it of it was-----

Did the witness do any due diligence on Sammon Contracting? The NDFA must have been informed when Sammon Contracting was taken on.

Mr. Gerard Cahillane

Our contract is not with Sammon Contracting but with PPP Co, with the funders and with the equity people. They are the people with whom we did the due diligence.

Did anyone at within the Department or within Government look at Sammon Contracting to assess its stability? No.

Mr. Gerard Cahillane

No. We did not look at Sammon Contracting on this occasion, because that was the risk we were paying for.

I call Deputy James Browne.

That is the risk the people who are going to lose their jobs and the contractors that are going to go out of business are paying for. It is they who are paying for it.

I thank the Chair and welcome the witnesses. It is important to start by setting out who we are talking about, especially for the public when they hear the term subcontractors. We are talking about family businesses such as painters, security firms, scaffolders or cleaners. These are people who have done nothing wrong. They are ordinary local people. They are the kind of people who get up very early, often at 5 a.m., and who do not return home until 7 p.m. or 8 p.m. They pay their taxes and have given their time, their money and their blood, sweat and tears. We hear about helping rural Ireland. This is rural Ireland. These are the people who play for the local sports clubs and who volunteer for local committees. When one goes to a cup final or a boxing match, they are the people whose sponsorship is in the programme. I have never seen Carillion, for example, sponsor any local sports club.

I will start by referring to a meeting that took place between the subcontractors and the NDFA last Tuesday at which an undertaking was given to liaise with the Department of Education and Skills. Have there been communications with the Department of Education and Skills and what has been the outcome of those communications?

Mr. David Corrigan

I represented the NDFA at that meeting and we did communicate with the Department of Education and Skills after that meeting, as well as with the Dutch Infrastructure Fund, DIF. We conveyed to them the concerns that were outlined at that meeting regarding the outstanding payments and the concerns about certification. We have not had a response from the Department yet but it was actively looking at it as of yesterday evening.

Is there any timeline as to when the NDFA would expect a response?

Mr. David Corrigan

I expect responses this week.

Will these be given to the subcontractors?

Mr. David Corrigan

The agreement at the meeting was that I would pass the feedback to the group who attended the meeting.

On the issue of certification, we have received more information but we are none the wiser as to the legal basis upon which the State can accept certification by contractors who did not carry out the work, in particular in respect of mixed products like concrete, steel and so on. Nobody can go back into the walls or the steel. Can Mr. Corrigan add anything on how the State can accept certification for these works?

Mr. David Corrigan

We do not have the specific details for each and every instance. What we have from our discussions with PPP Co and the assigned certifier is that on the basis of their review of it, at the moment it is a viable alternative approach if they cannot reach a commercial agreements with the existing supply chain. We also are in liaison with the Building Control Authority but the process is not concluded yet. They are the three statutory actors in this, namely, the assigned certifier, the builder and the Building Control Authority. There are no shortcuts to be taken here. It has to be a valid process with a valid inspection and test plan and must be validated at the end of the day.

The builder and the assigned certifier are responsible. They sign the statutory undertakings and the statutory certification on completion. They have not yet concluded their detailed breakdown of exactly how that works out and what due diligence and testing must be done on each material or product.

The State seems to be saying, by implication if nothing else, that the NDFA can accept third party certification. What is the State's liability if it transpires that something was wrong?

Mr. David Corrigan

In this process, the building control authority is validating the certification. It is the statutory body appointed to validate the certification process. One of the benefits of PPP contracts is that if there are any issues with any part of the building after the fact, be it inside or outside the building control regulations, small or large, the parties responsible and liable for resolving them will still be here. They will be here for 25 years and there are very stiff penalties and deductions from their repayments if they do not remedy something that is wrong.

If I had asked that question six months ago, one of the parties with responsibility for the next 25 years would have been Carillion. Is that not the case?

Mr. David Corrigan

In this case, it is PPP Co.

Is Mr. Corrigan certain that PPP Co will be around for the next 25 years?

Mr. David Corrigan

Nothing is certain, but the contract is in place. If PPP Co is not around, the State has a compensation on termination event with the funders in the contract.

The current type of PPPs was designed to stop big contractors ripping off the State. What has happened is that the risk has been placed on the subcontractors, the little guys. The developers are using the subcontractors' good names to get goods in local stores, hire employees and so forth. The Construction Contracts Act 2013 provided that subcontractors would receive periodic payments. While that provision was laudable, it has proven to be rather meaningless because the subcontractors are in a very weak position relative to the main contractors and have no means of enforcing it. The State does not look behind or audit it. Does Mr. Corrigan accept that those aspects of the Act have failed to protect subcontractors?

Mr. David Corrigan

As the Minister for Education and Skills, Deputy Bruton, indicated last week, this issue must be addressed. It came up at our meeting with the subcontractors on Tuesday and with the Office of Government Procurement. As Deputy Browne said, the protections provided in the Act were lauded at the time. However, if the provisions are not protecting subcontractors, as intended, they definitely need to be looked at. That is probably the primary action to be examined by the industry.

The legislation does not need to be examined too closely because the evidence is before the committee and can be seen outside the local schools that are part of this contract. Subcontractors, who have done an honest day's work, are losing money hand over fist, having done their job. Some of them are going wallop, which has an impact on their families and employees as well as local businesses. The legislation has failed and I expect, at a minimum, a review to be carried out as quickly as possible to identify what amending legislation is needed. The big developers are walking away or going wallop, but money is being paid and the subcontractors are being crucified.

What is the motivation behind bundling five schools and one institute of education in a single contract? While this approach prices out local contractors and prevents them from bidding for these projects, these companies end up doing the work in any case. The irony is that the State wants to bundle projects into big contracts in the belief that only large international developers can do the work, yet the developers do not do the work but subcontract it instead to local contractors and subcontractors. Why are projects bundled on such a large scale?

Mr. Gerard Cahillane

This goes back to 2009 and 2010 when the decision was made to bundle this group of schools. Most of the schools being delivered by the Department of Education and Skills are done on the traditional basis of a single project. Bundling school projects allows for scale and means they can be done as a public private partnership. In 2010, there was no money available to take the traditional approach, but it was possible to fund the projects off-balance sheet. We met the troika in respect of the stimulus package the Government introduced in 2010-11 and the package was approved on the basis that these projects would be done as off-balance sheet transactions, which need scale.

Can single school building projects not be done off-balance sheet?

Mr. Gerard Cahillane

They can but only in cases of larger schools. A project of more than €70 million would be needed to justify that.

The NDFA indicated it had taken legal advice on the State's liability. I am curious about the earlier statement that the goods in the schools had been paid for. Has the State, through the NDFA or another entity, received evidence to that effect? Has retention of title and claim on title been investigated? Has Mr. Cahillane seen receipts and evidence that all of these goods have been paid for?

Mr. Gerard Cahillane

The Minister for Education and Skills recently addressed this issue. Anyone with a claim to title is perfectly entitled to claim his or her goods back through the courts. In this case, the claim would be made against the Dutch Infrastructure Fund, DIF.

It appears the State does not propose to conduct any investigation into whether the goods it is taking possession of have been paid for. The NDFA is washing its hands of the matter and telling contractors they can go to court.

Mr. Gerard Cahillane

The State does not have a relationship with the subcontractors or suppliers here. It has a relationship with PPP Co, which it is contractually bound to pay, as I mentioned already.

While that may be strictly what the contract says, surely the State has a duty of care? Many of these subcontractors have a legitimate expectation that the State would carry out proper due diligence. The NDFA indicated due diligence was done on Carillion, yet the company subsequently went wallop with €7 billion in debt. It is hard to see how the company was not trading recklessly when it left €7 billion of debt behind it. The NDFA's position is that it will not look behind the goods it is taking possession of, notwithstanding that it has been highlighted to the agency by service subcontractors and Members of the Oireachtas that these goods have not been paid for.

Mr. Gerard Cahillane

That is a matter for the PPP Co to address.

Is the State not being unjustly enriched by taking possession of goods that have not been paid for?

Mr. Gerard Cahillane

The State is not gaining from this; it is paying the full cost.

The NDFA has not yet paid.

Mr. Gerard Cahillane

That is correct.

It is, however, prepared to pay.

Mr. Gerard Cahillane

The NDFA is contractually bound to pay the full cost that is in the contract, provided the services are delivered. Our priority is to get these schools delivered at no additional cost to the State.

What engagement is taking place with the schools? School principals, boards of management, parents and teachers have all been caught in the crossfire here. There is a serious shortage of school places in Wexford town and this is creating considerable pressure. Loreto secondary school in the town has hired new teachers, added new subjects to the curriculum and enrolled additional students. The current buildings are clearly not fit for purpose. The school has been caught in the crossfire in that it is expected to take possession of a badly needed new school in circumstances where local subcontractors have serious issues because they have not been paid for work carried out. I guarantee that relatives, friends and neighbours are involved in this case. It is an horrendous situation. What does the NDFA say to the schools? Has it engaged with them on the issue?

Mr. David Corrigan

Yes, we have engaged with them together with the Department of Education and Skills. Our representatives were engaged with the schools at a local level throughout the project and continued to engage with them throughout the first half of 2018. We attended several meetings held in the Department's Tullamore office, which were chaired by senior officials. We tried, as best we could, to keep the representatives of the schools and their boards of management updated as things developed through the first half of 2018. The Department provided a weekly update to the schools by email and we are in contact with them when we go to site and by telephone.

Does Mr. Corrigan expect students and teachers to cross a protest in their home town when they go to school in September? Have contingency plans been put in place?

Mr. David Corrigan

That is an emotive issue. It would be a regrettable situation.

It is obviously something that is being looked at and talked about with the Department and the schools at the moment. We are not there yet. We really hope it does not happen but we will certainly have to plan for how to deal with that at a local level.

I have one last question. Can I take it from the statements so far that the State is effectively not going to use any of its leverage, or the fact that it has not paid any money for these contracts, to ensure these subcontractors receive some kind of amelioration of their situation?

Mr. Gerard Cahillane

It is important that we are not disingenuous here. The State cannot step in to rectify the situation of the subcontractors.

I too want to address some questions. Mr. Cahillane's colleagues said here on 3 July that checks on Carillion in the UK were flawed but that the National Development Finance Agency, NDFA, had done everything it could to vet the company in Ireland. That is unacceptable. Does he feel that the subcontractors sitting in the room can accept that? He cannot stand over the fact that the NDFA had vetted them, looking at where we we are today. Who vetted Sammon? Can I ask Mr. Cahillane what checks and balances were put in place when awarding Sammon the subcontract?

Mr. Gerard Cahillane

Certainly the audits of Carillion are very questionable. There is an investigation into that at the moment, which we have already covered. We are relying on the audit process, which is the best way we can get information on companies.

Mr. Gerard Cahillane

Sammon was not vetted. Sammon was engaged by the PPP company and by the funders. They took the risk on Sammon.

So there was a risk with Sammon straight away. It was not vetted.

Mr. Gerard Cahillane

The PPP company takes the risk on everybody it engages. That is correct.

That is unacceptable. Risk is Mr. Cahillane's area of expertise. Is it not risky to let one company regulate how it operates without any further checks apart from certification at the end? I am not suggesting micromanaging companies, but we have no accountability. We are sitting here today asking questions and I really feel they are not being answered. There is no accountability. Mr. Cahillane said that this has been going on for 40 years with subcontractors and that this is what happens. It should not happen. We should not be sitting here today discussing public private partnerships, PPPs, for which contractors are waiting on money. We are being told that it is not the State's concern. That is unacceptable.

Mr. Gerard Cahillane

Our remit is to deliver these schools as fast as possible and to protect the taxpayer in that process. The regulation of the construction industry is another matter; it is not within our remit.

I do not believe that. That is why things need to change. Did the NDFA not know of, or hear anecdotally, stories of these companies' bad track record of paying subcontractors in other jurisdictions? Did it have any say in to whom Carillion awarded the contract? If so, what criteria were involved? I cannot understand. Mr. Cahillane said the NDFA vetted Carillion yet I have heard stories, as have subcontractors. Everyone here today is able to tell him stories yet he says that he did not hear any. Something here does not add up. The vetting was done for one company but not for others. I can tell Mr. Cahillane stories I have heard about the two different companies. I can tell him that the whole place knows of them. Who is doing their job here? What is the problem? I am representing my area of Carlow and I have subcontractors here who are waiting on money. They need their money. We are able to tell Mr. Cahillane stories. I will not get into them all individually because I do not think it is right to do so, but I can tell him stories. I know that many stories can be told about these companies yet Mr. Cahillane is saying that he was happy enough.

Mr. Gerard Cahillane

All the negative news regarding Carillion did not come out until the profit warning happened. We signed a contract with Carillion in July 2016 and our media search at that time showed no negativity against Carillion.

Mr. Gerard Cahillane

Well we did not come across it.

A lot of questions need to be asked here. I have been told that the owners of the Sammon Group have 12 companies. Some seven of these are now closed and are in liquidation. Sammon is still operating. Is it allowed to go for another contract? If it went to the NDFA for another PPP contract, would it be allowed to tender?

Mr. Gerard Cahillane

First of all we did not vet Sammon.

I know that. That was not right either. That needs to change.

Mr. Gerard Cahillane

Obviously it would not qualify if it applied for a public competition because it is in liquidation.

Carillion was vetted, however, and look at where we are today. Mr. Cahillane said the NDFA vetted Carillion to the best of its ability yet this is where we are today. This is where the problem is. The whole issue of vetting, the process of tendering and everything like that have to be looked at. It is like my colleague, Deputy Browne, said. We are promoting local work here. We are dealing with taxpayers' money. I know taxpayer's money is not involved yet but payments will begin from the time the schools open. We need to be looking at all this.

The State will benefit from the subcontractors' good work when the schools are complete, but it is benefiting from stolen goods. Is that illegal? Are we leaving ourselves open to a legal process? That needs to be looked at. This could lead to a legal process. Jobs will be lost because of this mess - and it is a mess - which will result in these subcontractors, these small people, having to get social welfare. This is going to cost the State money. If this does not get sorted we could end up with a legal battle. Some good working men and families will be out of work because of this. In the long term, risks are taken but this does not make sense to me. I cannot understand it. I was so disappointed when I listened to the report that was read. There was no thought given to the subcontractors. Everything was about the NDFA's agreement. I am sorry to say this, but all it is worried about is its agreement with Carillion and getting the schools opened. The subcontractors do not matter. The NDFA has its job to do and it does not matter who gets paid once Carillion is paid. Sammon got 98% of its money. That is fine, but that money was not passed on to the subcontractors. Where is the accountability in that? It does not matter who it is, there is not accountability. This is a State, this is a Government and this is a PPP process. This has to be right. As previous speakers have said, look at where we are with regard to the banks. It is déjà vu. We seem to be doing the very same thing again.

I have a question for the Department. This is very important. I read this month that the Australian construction commissioner said that the issue of non-payment of subcontractors' money is widespread and has resulted in many businesses going to the wall and jobs being lost. The commissioner's office launched a campaign to protect the subbies and the contractors who now do not risk being excluded from tendering for nationally funded building work. The reason I bring this up is that it was part of what I heard when I was listening to and working with the subcontractors. This has been going on for years. It is unacceptable. The regulation Australia has introduced is good. I want the Department to look at it. I do not know whether it is aware of it. It has been good. I have been monitoring it for the last few weeks. A really good proposal is being put forward for the subcontractors. I ask the Department to take that on board and to make sure that we do not again end up where we are today, which is in a situation in which subcontractors are not being paid, because that is unacceptable.

These subcontractors are Irish citizens who contribute to the State daily in so many ways, including by contributing revenue with the understanding and expectation that it will be dispensed properly. These subcontractors, however, have been deliberately denied outstanding payments. When Sammon went into liquidation the first creditor to be paid was Revenue. That means that the State has financially benefited from the contract already. Why can these businesses not be reimbursed? Why has that not happened? The first one to paid when Sammon got its money was Revenue. The witnesses are aware of that. That goes back to the taxpayer. Why are our subcontractors not being paid from that money? Can the witnesses tell me why the subcontractors sitting in the room are not being paid from the money Sammon paid Revenue? Revenue was the first payment Sammon made when it got its money. Will the witnesses answer that for me?

Mr. Paddy Howard

Is the question directed to the Department?

Mr. Paddy Howard

Speaking on behalf of the Department of Public Expenditure and Reform, when we approached this matter we were responsible for PPP policies. When one is assembling a policy one has in mind a certain objective to achieve. There are other blocks of policy and systems that are in place with which one does not interfere or disapply. The particular issue about which the Senator is talking relates to how processes operate when companies are wound up.

That is an issue for company law. The PPP process is not going to change or alter the level of priority that attaches in those cases. I am not an expert in those cases. I would take it that if one had an insolvency lawyer, he or she would very clearly explain the issues. Again, it is that point of not wanting to raise false expectations for people or anything else; that is just a block of law of what happens in that situation. It does not fall within the remit of PPP policy. To be fair to the NDFA, it does not fall within the remit of the management of an individual project.

That is the problem. I understand that the Construction Contracts Act in place since 2016 does not apply to PPP contracts. Why? Why are small businesses not protected by that law? Please clarify whether the subcontractors are protected. It is a sham to say that the Construction Contracts Act was introduced yet a subcontractor who works on a PPP does not qualify to be covered by that law. I cannot understand why that happened. We, as Members, are here working for the good of the country and we want these schools open. The subcontractors also want the schools open. The teachers and parents want the schools open. There is much controversy surrounding these projects in Carlow. I know that the best of contractors were involved in the project and worked really hard. Parents are now saying, "Oh, my God, the subcontractors have done the work and my kids are going to that school." Do the witnesses present understand the massive conflict that has been created?

The biggest issue for me is that nobody has taken responsibility for the matter. The view that seems to have been adopted is that the contract was done with Carillion and as long as the schools are open by December in order that we can do the contract and pay back the funding over 25 years, then we are finished and our job is done. It is not done and such a stance is unacceptable. Passing the buck, in terms of the PPPs, is unacceptable. Jobs may be lost yet there is no accountability and we were all given the same answers, which is unacceptable. I am very disheartened by the situation and believe the Minister should step in to resolve the matter. I have brought this matter to his attention. Last week he was in Carlow again yet he did not give a favourable answer. His attitude seems to be that he could not interfere in the matter. Somebody needs to step in to resolve the matter. At this stage we should approach the Taoiseach about the matter. It is unacceptable that we, through a departmental contract, could end up closing down subcontractors by not paying them for the work that they have done. This matter needs to be taken further.

Does Mr. Cahillane wish to respond?

Mr. Gerard Cahillane

It might be worth clarifying one thing, Senator. For the record, the Construction Contracts Act does apply between Sammon and its subcontractors.

I shall check the matter.

Mr. Gerard Cahillane

The legislation does not apply to the PPP company but below that it does apply.

It does not apply to PPPs. Is that correct?

Mr. Gerard Cahillane

Yes.

I am glad that Mr. Cahillane clarified the matter.

I thank the delegation for their submissions. Last March, the House of Commons Library compiled a briefing document on the collapse of Carillion. It reads:

In the eight years from 2009 to 2016, Carillion paid out £554 million in dividends, three quarters of the cash it made from operations. In the five-and-half-year period from January 2012 to June 2017, Carillion paid out £333 million more in dividends than it generated in cash from its operations.

Over the eight years from December 2009 to January 2018, the total owed by Carillion in loans increased from £242 million to an estimated £1.3 billion – more than five times the value at the beginning of the decade.

The NDFA delegation has said the NDFA carried out due diligence on Carillion. Would it be fair of me to say that the witnesses feel that the NDFA was misled by the auditors, KPMG?

Mr. Gerard Cahillane

It is fair to say that the accounts were misleading certainly, Deputy. Yes.

When due diligence is being carried out, does the NDFA look past the auditors or is that as far as one goes?

Mr. Gerard Cahillane

No. In this situation we looked past the auditors. As Carillion was a publicly listed company, we also looked at reports from the various commentators in that regard.

Mr. Cahillane said that no red flags were raised about Carillion. Is that correct?

Mr. Gerard Cahillane

Correct. Yes, we did it in 2012, 2014 and early 2016 before we awarded the contract. Obviously once a contract is awarded that is done then.

Does Mr. Cahillane accept that Carillion was a bit of a Ponzi scheme and that these guys were a sham?

Mr. Gerard Cahillane

Yes.

It was a con job. The NDFA looked past KPMG but did not see that anything was wrong. Is it fair to say that there might be an issue with how the NDFA carries out due diligence?

Mr. Gerard Cahillane

Again, the best method of doing due diligence is relying on independent audited accounts. Clearly, the regulation of that industry now is under major question. As members will know, in the UK companies are now thinking about breaking up all of the large firms and moving audit departments away from the non-audit departments to make them more robust.

Was the contract awarded in July 2016?

Mr. Gerard Cahillane

That is correct.

Does Mr. Cahillane agree that the reputation of KPMG was pretty well shattered a bit before then?

Mr. Gerard Cahillane

Not that I was aware of, no.

I know that the NDFA does not do legislation. Legislation covering subcontractors was introduced in 2013.

Mr. Gerard Cahillane

Yes.

It is pretty obvious at this stage that the legislation is fairly useless and did not do what was intended. Let us consider its definition of a construction contract. Section 2(3) of the Construction Contracts Act states: "A contract between a State authority and its partner in a public private partnership arrangement, as those terms are defined in the State Authorities (Public Private Partnership Arrangements) Act 2002, is not a construction contract." Even if this legislation was any good, which it is not, the provision was never going to be applied in this case because the project was a PPP. Is that true?

Mr. Gerard Cahillane

No. Our legal advice is certainly that the construction companies Act does apply to the relationship between the subcontractors and Sammon.

I ask Mr. Cahillane to please repeat what he said.

Mr. Gerard Cahillane

The legislation does apply in respect of the subcontractors engaged by Sammon.

The Construction Contracts Act states in section 2(3) states that it is not a construction contract if a PPP is involved.

Mr. Gerard Cahillane

That is at a higher level. In a PPP contract we are engaging with equity people and funders basically.

Mr. Gerard Cahillane

At a high level, it does not apply. Correct. Down the chain it does apply.

I want to discuss KPMG. The NDFA officials have stated the NDFA has taken legal advice that there is not a great position, from a legal point of view, for it to take a case against KPMG. Given that so many subcontractors are affected, with the consequential impact, and as KPMG did such a bad job of assessing the position of Carillion, would the NDFA consider taking a case not on its own behalf but on behalf of the subcontractors? In the interests of those people and the role they play in the State, would the NDFA consider taking a case in the courts against KPMG based on the fact that the latter's false information about Carillion has led to so many subcontractors getting shafted?

Mr. Gerard Cahillane

In short, Deputy, I do not think we would be considering taking the case against KPMG, based on the legal advice we have now received.

The findings that will come from the various reports that are being prepared currently by the regulator in the UK and other authorities in the UK may change that.

The subcontractors are the ones who are suffering the most for KPMG making a dog's dinner of its assessment of Carillion. The subcontractors cannot afford to go toe to toe in the High Court with KPMG. Even though the State might not have a great case, do the witnesses agree the State should consider taking a case on behalf of the subcontractors in the interests of justice?

Mr. Gerard Cahillane

It would be unprecedented for the State to do something like that.

Many things are unprecedented. It is a first for something in the world every day. Do the witnesses think that in the interests of justice, taking a legal case could be considered?

Mr. Paddy Howard

I really do not want to give a short answer. The State is not the one that morally has an issue here. As the NDFA has explained, we expect to be paying for these facilities.

I wish to introduce another point because we have talked around PPPs without getting into a discussion on PPPs. Please bear in mind there are different approaches to procurement. The particular issue or benefit of PPPs is the kind of way in which the State specifies very precisely what it wants and then can leave the operational detail as something that is a matter of satisfying the contract. As has been clear from the engagement, that is the framework. My perspective is one of considering the policy framework to see if there is something that we can change. When we reach the end of this process, I expect we will conduct a review to see if there is anything out there. To be frank, without looking through that, we have not seen anything yet that suggests to us that a change is necessary in the overall policy framework.

It seems to me that striking a deal with a PPP is a nice arrangement, despite the fact that the deal costs 15 times more than can be borrowed. It is a nice arrangement where people can say, "There is the contract, there is the deal and we wash our hands off this project as it has nothing to do with us anymore." I believe that the organisations present do not give a damn what contractor was chosen. Sammon was chosen but it is comprised of a crowd of cowboys. By the sound of things, the Department of Public Expenditure and Reform has no input into this matter because, as the NDFA has stated, the arrangement was made so the matter has nothing to do with the Department from here on, and the PPP boys will run things from here. Is it good enough for the State not to give a damn or have no influence over what contractor, be they a cowboy or otherwise, is appointed by the people with whom it has just done business? Do the witnesses not give a damn about who is picked? I understand that the Department of Public Expenditure and Reform did not employ the contractor but it does not seem to give a damn about who was picked by the people it employed. The subcontractors were not employed by the Department of Public Expenditure and Reform but they were employed by the contractor picked by the people it employed, and they did not pay the subcontractors because they ran into problems. Sadly, there is no security for the subcontractors. The Department of Public Expenditure and Reform does not seem to give a damn about that either and has washed its hands off the matter as it does not go that far down the food chain.

Mr. Paddy Howard

If it is that question, we care about the effectiveness of the framework in delivering the public interest. We have conducted a review at the policy level and that is what I briefly outlined at the start of this meeting. We have said, "Yes, this is a technique to employ on certain occasions."

The Deputy has raised an issue about subcontractors. First, it is not an issue that relates primarily to the PPP code; it is an issue that relates to the construction sector generally. The Deputy has pointed to legislation that is in place but it is not particularly a part of the PPP code. Does the Deputy understand what I am getting at?

Mr. Paddy Howard

If one looks at all these issues or if one considers the issues around what happens to a subcontractor if the person he or she is dealing with goes insolvent, then as the Deputy will know, that is a situation that arises, whether it is public, private or wherever, but it is a different issue.

Mr. Paddy Howard

Let us consider PPP as a policy that we are employing. Where are we with it at the minute? It is as I outlined. This is a technique that we would use. Its distinctive feature though, to make it clear, is that as our colleagues have explained, it places the risk on the parties that we deemed best able to manage it. That is why in the current situation, if this was a traditional procurement, we would not be saying much that is different from what we are saying now but in a PPP, there are additional concerns, namely, there is a contractual arrangement on somebody else to perform it. There is a private sector entity out there that has to perform and we will be deficient in our public duty if we did not insist that they live up to that responsibility.

Time, Deputy Wallace.

Responsibility has been reneged upon. When there is a PPP project, do the witnesses accept that the risk to Irish workers and subcontractors is greater and there is less control for the State?

Mr. Paddy Howard

No. I do not think we would accept that there is a difference, in terms of the regulatory framework, that faces people in that situation. As I explained earlier, when a Senator talked about insolvency law, it is not that we are disapplying the protections that exist in other policy areas. What we are doing is we are taking an approach to public procurement, which is how we manage the public interest in respect of the contracts that are going out.

So many subcontractors were involved in this project and the collapse of Carillion has had such an impact on them that I do not think their anger will dissipate. Whether they get satisfaction is one issue but there is another issue. When the subcontractors' Bill was being introduced I remember the then Minister of State, Mr. Brian Hayes, saying that it was not going near the arrangement with receiverships and liquidations. In other words, the Bill was never going to deal with non-payment and it dealt with late payment. The rule in this country is that the banks are first in line, then Revenue, and finally, whatever crumbs are left are divvied up between everyone else. That is the case in some countries but is not the case in several others. In the US, for example, there is protection for subcontractors. One can get a lien on a contract if one is owed money and can prove it.

I know that officials hail from different Departments and that these matters relate to lots of areas. In 2014, we debated company law and argued for over 1,400 pages of the legislation with the then Minister for Jobs, Enterprise and Innovation, Deputy Bruton. Is it not imperative that we change an arrangement where the small fella gets shafted first and the biggest fella is looked after best? That need not be the case. In most states in America, the subcontractor is protected. Can the witnesses tell me why they think we do not protect the subcontractor in this country but protect the bank first?

Does Mr. Howard wish to answer?

Mr. Paddy Howard

In the States, there is legislation that dates back over 100 years where, I think, a performance bond is required to be taken out by the main contractor. Again, different people have different approaches. That does, I take it, give a modicum of support to people. My understanding of that is it is not a completely comprehensive measure.

Ultimately, one will find that whatever measure one tries to put in place will be something like the measure that already exists in the 2013 Act, which requires a subcontractor to announce they have not been paid or words to that effect. Alternatively, one is into a major review of insolvency law, which is beyond my competence. I am just saying that is the position. I do not think one can detach it from that area because that is directly what one is interfering with. In that situation, we would state that it is a matter for another Department because company law is an expertise of its own.

I thank Mr. Howard and Deputy Wallace. I call Deputy Jan O'Sullivan.

I am substituting for Deputy Burton, who cannot be here. I realise there have been many questions and answers.

I want to ask Mr. Howard a few questions and follow on from the questions asked by Deputy Wallace. Mr. Howard has said on record that his Department measures "the effectiveness of the framework in delivering the public interest".

Mr. Howard states he does not see the Department as reviewing policy in this regard. Surely policy must be reviewed in terms of delivering the public interest when it comes to the subcontractors. The State must have an obligation to look after the interests of the subcontractors, the interests of the public generally and, indeed, the interests of the children who will attend the schools, their families and their local communities. I can understand why, back in 2009 and 2010 when there was no access to funding, PPPs became a good option, because they were off balance sheet. The Department of Public Expenditure and Reform would surely have to review the public interest and policy. There are some 400 subcontractors at crisis point, and 10% of them have actually folded. Is there not a broad public interest here that needs to be addressed? The use of PPPs, where the economy is not in crisis, is something the Department needs to question.

Mr. Paddy Howard

I thank the Deputy for that. I might not have made it clear but once the dust has settled we would look at the practical experience in this case and see if there are policy lessons; I would be quite clear about that.

It also relates to the issue raised earlier around the European Union and whatever might be available in terms of protection.

Mr. Paddy Howard

I will need to trace the reference to see what that is; I do not know what that is and want to direct it appropriately.

Returning to the earlier question, the effectiveness of the policy framework is something we will look at. That will be focused on whether this is a way of delivering results. We have already undertaken that, and that was what I was adverting to in my opening remarks. Last year was a year of deliberation in terms of capital in general, where we produced our ten year national development plan. As part of that we did a review of PPPs. We need to look at that analysis, which was published yesterday. The key findings were included in the NDP report. That is where we are with this at this moment.

We see that PPPs are a technique that has in the past managed to deliver infrastructure effectively, in most cases. The area around performance in the contract, as to insolvency and those kind of issues, is a more sophisticated set up than traditional procurement at the moment to the extent that there is a framework in place that can anticipate what should happen if a key player goes insolvent or if there is some other disruption.

I will also mention that within the framework at the moment, there are certain advantages that would apply in certain situations. It is not that we are making a commitment to any particular level, but it is still a tool in the toolbox, and that at the individual project level, if a value-for-money, VFM, case can be made, then it should be undertaken.

Such reviews as we have done of the VFM of PPPs have generally been good. We are undertaking some more, and that is where we are with it.

Returning to the Deputy's original point, to make it clear, if a significant case arises, once the operational issues are resolved, we would be looking to see if there are any implications for policy framework. I would point out from our earlier discussions that many of the issue that I believe have been raised are not issues for the PPP policy per se, they are more issues around company law and that area bearing in mind that we do not reinvent company law when we come to devise what is our PPP policy.

It is evident from the answers given earlier, it is much more at arm's length when it is PPP, particularly where KPMG has been involved for example; there seems to be very little access to that. In this case it is easier to deal with something that is directly in the country, from the view of subcontractors.

Mr. Paddy Howard

To be really clear about this, as it goes to the heart of the matter, the benefit of a PPP from the point of view of the public authority is the fact that one has moved risks to the private contractor and one is paying to move those risks. That is a benefit that applies in some but not all cases. There will be other cases in which a traditional approach is preferred.

I will take up the same point somewhat with Mr. Cahillane and Mr. Corrigan. One of the witnesses said that his job was not to put risk back on the State which is one of the reasons the witnesses are not dealing with the subcontractors but with the body with whom the witnesses have the contract. There is risk to the State, in a number of areas, including the fact that if the schools cannot open in September, the Department of Education and Skills will have the cost of prefabs, which represents one risk to the State. There is a risk to the State in terms of possible job losses and payment of those who lose their jobs, and possible legal bills to the State. The answers all seem to say the risk to the State is less here because it is the other people who have to deal with the problems. Would the witnesses acknowledge that there is risk to the State in all of this as well?

Mr. Gerard Cahillane

The Deputy is correct, there are consequences for the State here in terms of these facilities not being available now. There will be costs for the Department of Education and Skills associated with that. The point I was making is that we have entered into a contract, where the risk of delivery and funding to the required standards of the facilities is with the private sector. That price has been agreed and we do not want to pay any more than that price.

Mr. Cahillane sees his remit as narrow as that. The risk he is looking at-----

Mr. Gerard Cahillane

There is quite a lot in that, with all due respects-----

It does not take into account the human cost of people whose livelihoods are at risk. Is that not of concern at all in how the NDFA organisation operates?

Mr. Gerard Cahillane

We expect all the entities that we deal with to comply with the general legislation and regulations that exist.

That is the problem. It is all about regulation and separation and such matters.

I want to see where we can go from here. Mr. Corrigan, I believe, was at the meeting on Tuesday; he said that he contacted the Department of Education and Skills after the meeting and is waiting a reply. Is that correct?

Mr. David Corrigan

That is right.

I do not know if this would concern the Department of Public Expenditure and Reform but could the National Development Finance Agency, the Office of Government Procurement and the Department of Education and Skills all sit down at the table together, and also meet the subcontractors? Is that something they would be willing to do to try to resolve this?

Mr. David Corrigan

That is not something that I can give a definitive answer to until I would take it away and talk to the Office of Government Procurement and the Department of Education and Skills. Over the past couple of weeks our concern is meeting with subcontractors without something constructive to say, or to give any suggestion that there is something for the State to do to remedy their situation. The NDFA's position under the PPP contract, which is what we are mandated to run with the PPP company, has no flexibility in that regard. We have been clear on that and the Minister, Deputy Bruton, spoke of this last week and explained the point about the State having to pay twice, notwithstanding that this is of little value to these subcontractors here this morning. The State will be paying and the PPP-co-entity has paid, but the subcontractors have not been paid.

The State will also be paying for prefabs and other things, and may be paying, in fact, for what was described as stolen goods earlier on. Does the NDFA not have to balance those things?

Mr. David Corrigan

They all have to be taken account of. I have set out where the NDFA is under the piece of work that we do in managing our contract with the PPP company. The OGP was at the meeting with the subcontractors as well on Tuesday, and we did commit to bringing it up with the Department of Education and Skills, which I did, and that we will come back before Friday.

The three witness groups at least could sit down together, including the Department of Education and Skills.

Mr. David Corrigan

I will certainly take that point away.

The Department of Education and Skills has concerns in this regard that need to be on the table as well.

Mr. David Corrigan

It absolutely does.

I would be interested in the outcome of that because what we all want to see here is a way forward to see how we can resolve this issue. I thank the witnesses.

I thank Deputy O'Sullivan. In Mr. Howard's opening statement, he said that regarding Carillion, the main priority now is to resolve the operational issues and ensure that the relevant schools are brought into operation as soon as possible. How does the Department propose to do that?

Mr. Paddy Howard

It will be clear that from the next element of that that the operational responsibility lies with the Department of Education and Skills and the NDFA. We are simply enunciating here what the key interest is at the moment.

Mr. Howard refers to the public interest also. There is an interest of Irish society in this. The State is not just something that is abstract, out there; we are the State. It is in the interests of the State that the subcontractors be paid in order that they keep their businesses open and keep people employed. Whether it is urban or rural Ireland, employment is absolutely necessary. What we are endeavouring to do here, as Deputy O'Sullivan has said, is to find a resolution to this problem, notwithstanding that most of the State players are running in the opposite direction, covering themselves ten times over. That is not going to work with us. That is certainly not going to work with the subcontractors. From a policy perspective, looking to the future, there may be a lot to learn from this. It baffles me as to why a single adjustment to an overall contract cannot include the payments made regardless of where the subcontractor comes in, whether it is the main subcontractor or whether it is subcontractors down the pecking order. It must be possible to police this to ensure that the money is spent correctly. That is on the policy front. I do not accept the Department of Public Expenditure and Reform's position that it just writes the and sits back. The Department has a role in this in this. The Department pays the Department of Education and Skills. The Department pays presumably the taxpayers' money into the NDFA or whoever it is. The Department has an obligation to ensure that it is spent properly and correctly. Where a contract is in place, and being blackguarded in the way the subcontractors are being blackguarded, I believe the State has an obligation to exercise the rule of law. I am going to ask Mr. Howard to consider that and I do so on the following basis.

This is a letter from a local firm that was engaged by the companies concerned here. Their customers would include the Department of Education and Skills, the HSE, occupational therapists, speech therapists, preschool and primary schools. It is a player in all of this work already. They were encouraged to meet the buyer, that is how they describe it. In 2016, Enterprise Ireland, the NDFA and the Department of Education and Skills had a "meet the buyer" event in Carlow. This firm was invited into that. It was given information about the process and how it could get involved. It was a Government-led initiative to meet the buyer and all the main players were there. If I was going to that as a business person, I would feel comfortable about it because it is in fact the Government I am going to be dealing with. At this event this firm met Sammon Contracting. They go on then to say that, with the high level of Government agencies involved, they thought "what could go wrong?". This project is Government backed. Here one has a small family business, caught up in the day-to-day affairs of keeping itself afloat, acknowledging all the main players here and saying this seems to be a good move.

Sammon Contracting then contacted this firm and said that it wanted to make a statement about how it finished its work so it wanted the subcontractor to apply the highest standards possible to the school furniture that it would be providing. This company worked with Sammon Contracting to get them through the Department of Education and Skills requirements for that area. This subcontractor was constantly engaged with the Government, as it would see it. I would have the same feeling if all of this was going on, and it was going on.

Carillion then collapsed. The firm was informed by Sammon Contracting, and it has the letter, that all would be okay and that the project, which involved the Government, would proceed as planned. It was told by Sammon Contracting then to remove the furniture from the Ravenswell site, and they moved it into long-term storage. This subscontractor has now lost €84,000, and this can be applied to any contractor, I am just giving an example that I have here because it is in our correspondence pack this morning. Any contractor that is owed an amount of money, in this case €84,000, in another case in Kilkenny with Walsh's, it is owed €250,000. That will cripple the company. Companies that we heard from here are generations in the business.

I can tell the witnesses that they will be disgusted with the response that they have heard this morning from all of the State agencies. These agencies have a big basin over there and they are all washing their hands of any connection with this. The letter from the National Treasury Management Agency, which concerns me, talks about the NDFA being in ongoing discussions with the company and the assigned certifier to ensure that all necessary building control certification will be available to secure a valid certificate of compliance. It reads as if the NDFA is desperately trying to find a route around the proper method of certification, so it can get off the hook.

On one side we have correspondence saying "it is not us; we have nothing to do with it", then on the other side we have the National Development Finance Agency is answering to us here and telling us differently, and they are endeavouring to reach agreement with subcontractors. What subcontractors? Is it those subcontractors that are here with us or is it some other set of subcontractors? Who is the NDFA meeting and what are they talking about.? I will let he witnesses answer but I want to get through this correspondence here first.

The correspondence continues to state that it is necessary for Dutch Infrastructure Fund, DIF, together with its subcontractors, Woodvale, and the assigned certifier, to examine alternative methodologies to satisfy he building control certification requirements. The NDFA is as bad as Sammon Contracting and Carillion for dodging the bullet. It is going to get into bed with them and to screw those subcontractors that are due the money they are owed. That is what that reads like.

The correspondence goes on to say that the buildings and works will be adapted in the event that agreement cannot be reached. Have the witnesses no respect for the subcontractors? That is an appalling statement to make. The letter goes on to state that it is a distressing time for the subcontractors, but that Sammon Contracting, which has already been paid for the work, is now in liquidation. One can hear the water running on the hands again. I find that offensive coming from a Government agency.

I want to refer also to the correspondence, signed by the Minister for Education and Skills, Deputy Richard Bruton, which simply tells the subcontractors that the Department will not be paying them, because the Department of Education and Skills was never party to these contractual arrangements. In the letter from the Department of Public Expenditure and Reform, I believe it is, it states that it is the Department of Education and Skills is the Department that is responsible. If I was a subcontractor, I would be absolutely baffled by the number of State agencies that are involved in this that are running in the opposite direction.

The last question is on the payment of €250 million over 25 years. Who has been paid? What is left over? Can the NDFA liaise with the contractors and the subcontractors to get the certification? Will the NDFA only accept certification from the people who delivered the goods and services? Carillion has gone broke and is in breach of contract. Down the line, there are only contractors who have not been paid. Can the witnesses answer those questions?

Mr. David Corrigan

I will start with the question about the certification paragraph in the NTMA's letter. We spoke about it earlier. I assure the committee the NDFA is not in bed with the Dutch Infrastructure Fund, DIF, in terms of circumventing regulations or the statutory provisions of the State. The intention of that paragraph was to assure people that the NTMA will ensure that the statutory regulations are complied with in full. That is the legal and statutory responsibility of DIF, the assigned certifier and the builder under the contract. Nothing less will do.

Can Mr. Corrigan assure the subcontractors, who did all of the work and should certify it, that the NDFA will seek the original certification only from them and from no one else?

Mr. David Corrigan

I cannot do that.

Is the NDFA going elsewhere?

Mr. David Corrigan

No, I am not going elsewhere and the NDFA is not going elsewhere.

Who is going elsewhere then?

Mr. David Corrigan

Under the contract, PPP Co is obliged to comply with the statutory requirements of the assigned certifier and the certification process to deliver these buildings. The NDFA has impressed on PPP Co that it should, in the first instance, engage with the subcontractors and the existing supply chain. The most sensible option for everyone is to reach agreement with the existing subcontractors to complete the works and certification.

Is Mr. Corrigan referring to the subcontractors who did the work or someone further up the food chain?

Mr. David Corrigan

No, I am referring to the subcontractors who have been on the job, installed the materials and were building towards certification of the product.

The NDFA will not bypass them.

Mr. David Corrigan

I cannot say that. What I am saying is that, in the first-----

In that case, the NDFA will bypass them. The NDFA can do one of two things, it can either bypass the subcontractors or not bypass them. If the subcontractors are not bypassed, they will be involved. If the witnesses have some other notion in their heads, the subcontractors will not be involved. It is as clear as that.

Mr. David Corrigan

We do not have a notion in our heads.

That is the problem.

Mr. David Corrigan

The NDFA has impressed on PPP Co the need to focus on the existing supply chain in the first instance and to try to reach a commercial agreement with the subcontractors to complete the works and certification. That is the understanding and that is PPP Co's responsibility. It may not be able to reach a commercial agreement with some of the subcontractors. In that event, it still has to find a way to certify the buildings. If it cannot find a way to certify and comply with the building control authority's requirements, that will be a problem for it. What it has told the NDFA is that it will endeavour to reach agreement with the existing supply chain and subcontractors. If it does not reach an agreement, in part or in whole, it is looking at alternative certification methods to comply with its statutory obligation under the regulations. That is a process that culminates in the validation of the certification with the building control authority. The NDFA will not be party to any shortcut in respect of those regulations. Even if we wanted to be party to such a shortcut, we could not do so because the matter ends up with the statutory building and control authority.

I ask the witnesses to respond to the other issues I raised.

Mr. Gerard Cahillane

The State has paid between €3 million and €4 million in respect of off-site works to the PPP company. In terms of the main contract, to which the Chairman referred, the State has paid zero to date and cannot pay until the facilities are delivered. It then pays in monthly instalments over the next 25 years.

What has been paid?

Mr. Gerard Cahillane

Some off-site works were paid for at a cost of between €3 million and €4 million.

To whom was that paid?

Mr. Gerard Cahillane

It was paid to the PPP company.

Is that Inspired Spaces?

Mr. Gerard Cahillane

That is correct. In terms of the main contract for the delivery of the schools, zero has been paid. Even though it has been fully funded by the funders, zero has been paid by the State to date. Payment will not commence until the schools are delivered.

The NDFA has not paid anything.

Mr. Gerard Cahillane

That is correct.

The NDFA holds all the aces.

Mr. Gerard Cahillane

That is correct.

The NDFA holds all the aces because it has not paid anyone. Maybe we can circle the wagons on that.

Mr. Gerard Cahillane

The NDFA has a contract.

No, it does not because the company has gone bust.

Mr. Gerard Cahillane

Carillion has gone bust. The entity with which the NDFA has a contract is DIF and the funders. That contract is still valid.

It is valid if DIF can deliver the schools.

Mr. Gerard Cahillane

Yes.

If it does not have certification, it cannot deliver the schools.

Mr. Gerard Cahillane

That is correct.

In that case, it would be in breach of contract.

Mr. Gerard Cahillane

Yes.

Is there a penalty in the contract between the NDFA and the company for failure to deliver on time?

Mr. Gerard Cahillane

There is a long-stop date. If the facilities are not delivered by that date, the State has the option of terminating the contract.

What is the long-stop date?

Mr. Gerard Cahillane

I think it is January of next year.

All the accreditation and certification for bundle 5 are required by January.

Mr. Gerard Cahillane

That is correct.

What is the status of the contract if they are not provided? Does a penalty apply?

Mr. Gerard Cahillane

It is not a penalty because no money has been paid to the PPP company yet for the contract. It is incentivised to deliver these things as soon as possible. It is significantly behind the delivery schedule and has, therefore, forgone several million euro in unitary payments already.

Will Mr. Cahillane explain that? The unitary payment the PPP company was expected to get in 2018 was in the region of €5.36 million.

Mr. Gerard Cahillane

That is correct.

Mr. Cahillane told the Chairman that payments of between €3 million and €4 million had been paid.

Mr. Gerard Cahillane

That was for enabling works.

Is that part of the contract?

Mr. Gerard Cahillane

That was an addition to the contract.

The PPP company is not being paid to manage buildings because the buildings do not exist.

Mr. Gerard Cahillane

That is correct. It is not being paid at all at the moment.

If I am a subcontractor - an electrician - working in one of those schools and employed by a main contractor, I face penalties. For example, if I tender for work that must be finished by 31 July, I am hit by a penalty of, say, €1,000 every day I go over that deadline. Has the NDFA put in place a penalty for the failure to deliver these schools on time?

Mr. Gerard Cahillane

A different system applies. The NDFA has not paid any money in respect of the main contract. There is an incentive in place for PPP Co to get the facilities delivered so it can be in receipt of its unitary payments.

Those are for managing the facility.

Mr. Gerard Cahillane

They are for delivering the facilities and managing them for the next 25 years.

The company would not expect payment because it would not be managing anything.

Mr. Gerard Cahillane

It has not delivered them either.

No late penalty applies.

Mr. Gerard Cahillane

That is correct.

Will Mr. Cahillane recap on the deadline of 1 January? What is the significance of that date in the event that the PPP company has still not delivered by the deadline?

Mr. Gerard Cahillane

The entity with which we are engaged is non-compliant with the contract. It has been given a reasonable amount of time to rectify matters. If matters are not rectified within a certain time period, the State has the option of terminating the contract.

What would that mean for the State if the contract was terminated?

Mr. Gerard Cahillane

The NDFA would re-tender the project, all the equity would be wiped out and the banks would take a significant haircut. The NDFA would repay the bank debt, less the rectification costs. It would also put the delivery of the schools way out there in terms of time.

Why has the NDFA not told PPP Co that because the agency must sign off on and be satisfied with the standard of these schools, and because the statutory code states the subcontractors must certify their own works, PPP Co must sort that out with the subcontractors and the NDFA will not say that the job is complete until that is done because that is what the code states? Why has that approach not been adopted with PPP Co?

Mr. Gerard Cahillane

As my colleagues have mentioned, we have encouraged PPP Co to use the existing supply chain. The legal advice the NDFA has received is that PPP Co cannot be forced to use all of the existing supply chain.

I understand that. The NDFA cannot direct a private entity to do anything. The Chairperson spoke about the NDFA holding all the aces because it has not paid a penny yet. The biggest ace it has, the trump card, is that it must sign off on the certification. While I know a building control will sign off, the NDFA is the agency that must be satisfied, so it can say it will not be satisfied until the subcontractors who did the mechanical, electrical, steel and other work have certified their works. That is what is in the code.

Mr. Gerard Cahillane

The Deputy seems to be suggesting that the NDFA should change its contract with PPP Co. If that contract is fundamentally changed, the NDFA might then be in default and it would then be exposed to the full cost of the project. The equity would get all its money back and the funders would be reimbursed as well. The NDFA does not want to be in that position.

The accepted position at the time the NDFA signed the contract with PPP Co was that each of the subcontractors, be it Sammon or others below it, would certify their works. Therefore, the agency is not changing anything. I would argued that the NDFA is involved in changing it now because it is engaged with PPP Co and the independent assessor. By whom is the independent assessor employed?

Mr. Gerard Cahillane

He is jointly appointed by PPP Co and the authority.

Which authority?

Mr. Gerard Cahillane

The NDFA and the Department of Education and Skills.

Does Mr. Cahillane see the conflict of interest there? That is ridiculous. It is bonkers. The problem here is that it is in the interests of PPP Co to do what it is planning to do. I understand that the priority is getting these schools opened in September and that the NDFA is dealing with a major mess, but it also has a responsibility in relation to the quality, the assurances and the subcontractors. There will be children going into these schools knowing that the people who built the schools did not get paid and their companies have been put to the wall. It is not appropriate that, in an area where we try to foster values in our children, that is the starting point.

I appeal to the NDFA to take a different approach and to look at the way in which it can enforce that. There is a lot of vagueness in terms of the responsibility being on the independent assessor and PPP Co to get certification, and if they cannot do that, they are in deep trouble. The NDFA is putting the responsibility onto the building control. The building control is saying that it is taking its advice from the Department. There is a triangle here in terms of all the parties trying to resolve this issue. It is resolving the issue in getting the schools opened and getting them completed, but it completely and utterly shafts the subcontractors. The NDFA needs to go back to the drawing board and take on board the views of the subcontractors. I can understand why the NDFA came to that approach. There are many other bundles, including the one in Portlaoise, and that is what happens: the subcontractors get shafted. This is different, however, because the NDFA holds an ace, a trump card, in this case.

I want to ask a further question which picks up on what my colleague, Senator Conway-Walsh, was querying about the cost of bundle 3. She mentioned that the expenditure on the unitary charge, which is the ongoing maintenance charge for bundle 3, was €411 million over 25 years. Mr. Cahillane disputed those figures.

Mr. Gerard Cahillane

I said I would come back and clarify those figures.

Mr. Cahillane said he thought they were significantly lower than that.

Mr. Gerard Cahillane

There is sometimes a confusion between nominal figures and discounted figures as well. I will come back and answer that comprehensively.

The capital cost of bundle 5 is €90.9 million. Is that correct?

Mr. Gerard Cahillane

The capital cost is in that region, less than €100 million.

Excluding VAT, it would be €90.9 million. The maintenance cost for this bundle is €264 million.

Mr. Gerard Cahillane

We covered this earlier. We are not releasing the commercial figures at this point regarding this transaction.

The NDFA has released the commercial figures. I have them here. They were released in March 2018.

Mr. Gerard Cahillane

In respect of bundle 5?

Yes. I can tell what will be paid every year. In year 1, €5.36 million will be paid; in year 2, €9.43 million will be paid; in year 3, €9.49 million will be paid, and so on.

Mr. Gerard Cahillane

Those are the fixed unitary payments. Correct, yes.

Every payment up to 2043 is accounted for, which will be a smaller payment of €1.84 million. The payments increase up to €20 million and more. Let us go back to this because the figures have been made public. A sum of €264.5 million is what this company will get to maintain these schools.

Mr. Gerard Cahillane

And to build and deliver these schools as well. That unitary payment covers the capital cost and it also covers the life cycling.

The capital cost is €90.9 million. If that figure is compared with the subcontractors' figures and how much they have been stung by, there is a significant portion of that capital cost that the company has not paid for. Money may have gone to Sammon, but it did not get to the men and women who delivered the service. The capital cost of building these schools is €91 million and the cost of building and managing these schools is €264 million. How is that good value for money? At a time when money can be borrowed at interest rates of less than 1%, how can that be seen in any way as good value for money? My colleague, Senator Conway-Walsh, mentioned school bundle 3. The figures in that regard are €411 million that the company will get to manage these schools. The capital cost for school bundle 3 was €100 million.

Mr. Gerard Cahillane

Before any contract is signed, there is a detailed value for money comparison done between doing it as a PPP or doing it on an equivalent, traditional basis. This exercise proved that the PPP was cheaper than doing it on a traditional basis over the next 25 years.

The biggest reason that this extortionate amount of taxpayers' money is paid to these private companies is because the risk is moved onto the private companies. In reality, the risk has been absorbed by the subcontractors. The risk is that children who should have been in schools were not in schools on time. Clearly, this is not good value for money given what we know has happened.

Mr. Gerard Cahillane

The contract still holds and the State is only going to pay what it is contracted to pay.

The NDFA holds the aces given that this company will get €264.5 million from the State, but it has not got a penny yet and the law says that the subcontractors must sign off on their own work. The NDFA must not facilitate the company in anything other than ensuring the subcontractors get paid. The NDFA holds the aces. The agency has to sign off on it. It will authorise the cheques of more than a quarter of a billion euro to this company. The company has a lot to lose. What we done over recent weeks in a rush to get the schools open, and I can understand the priority in that regard, is not the appropriate way to do it. We need to get the schools open, but we need to do it in such a way that, when the ribbons are cut in those schools, we can be proud that our children are running into schools that have been paid for by the people who put effort, time, sweat and energy into delivering world-class infrastructure. That is the priority and that is the challenge.

It is important to state we have provided solutions today as to how this can be done in a different way. The model that has been in use is flawed and it has had an impact. This shows the usefulness of this committee.

To protect subcontractors in the future, can it not be legislated that the State will insist on the main contractor taking out a bond to protect subcontractors and ensure, in the event of the main contractor going into liquidation, that the contractors are paid? Can it be legislated for?

Mr. Paddy Howard

What the Senator is talking about is the US model that was referred to earlier. I take it that it is technically feasible. It involves the main contractor taking out that performance bond and it would have some limitations about who could take it up. In policy analysis on the fly, one anticipates it would give the insurer a role that it does not have at the moment. I do not know what the consequences of that are.

Mr. Paddy Howard

I cannot give a definitive answer on that except to say it has been done in another jurisdiction. If a more definitive answer is required, I will say that in the context of PPP policy we are giving no consideration to such a proposal at the moment.

Mr. Paddy Howard

We are not giving any consideration to it. We do not see a reason it is needed.

On behalf of this committee, I ask the Department to give it serious consideration.

Mr. Paddy Howard

The Senator certainly can raise that. We can deliberate on that.

Please do so and revert to the committee.

Mr. Gerard Cahillane

The subcontractors have an option of taking out insurance against non-payment by their contractor but obviously, that costs money.

I am asking whether we can do it as legislators. Can it be legislated for? I would appreciate it if the answer could be given to the committee through the Chair.

I return to the EU directive that provided for this. Given the roles that the NDFA and the Department have, it concerns me that advice was not sought from them on the scrutiny of this legislation and how it could be put in place. Are the representatives telling the committee that protection of the subcontractors has not been considered? In both of the roles that the NDFA and the Department have, have they taken EU legislation into account in informing their decision about the models that are used?

Mr. Paddy Howard

On that particular measure, we will not give any useful or considered answer until we have seen it and can give some kind of informed response.

I find it quite alarming because it says to me that there has been negligence here. The EU directive outlines exactly how the contracting authority may be required by a member state to ask the tenderer to indicate in its tender any share of the contract it may intend to subcontract to third parties and any proposed subcontractors. That would give the chain of responsibility and would allow for the measures to be put in to protect the food chain. It would not end up with those at the end of the food chain having to pay the whole price. The directive continues by stating member states shall provide that at the request of the subcontractor and where the nature of the contract so allows, the contracting authority shall transfer due payments directly to the subcontractor for services, supplies or works provided to the economic operator to whom the public contract has been awarded, that is, the main contractor. All the answers were there within this about how the protections could be put in place. Can a Carillion-type situation happen again tomorrow morning? What has been put in place by the State to stop it happening? Is there anything to stop it happening?

Mr. Gerard Cahillane

No, unfortunately the construction industry is a high-risk and low-margin industry, particularly in Ireland and the UK, where the average margins are approximately 1.5%, while in Europe it is approximately 5%. It is a high-risk industry and it could happen again.

That is why we have a responsibility to protect it. It is high risk but there are measures that can be put in place to make it less high risk. The directive states, for example, that the contracting authority shall require the main contractor to indicate to the contracting authority the name, contact details and legal representatives of its subcontractors involved in such works or services, insofar as known at any time. It is all there to make it less of a risk. Our whole economy, not least in the regions, depends on the protection of small indigenous businesses, like the businesses we have discussed here. We are failing as a State and as State agencies if we do not put those protections in place. At the point we are at now, it is not good enough to say it does not come under one's silo remit. That is why the Department and agencies need to get around the table and sort this out. We are talking about the problem that we directly face now being solved by approximately €14 million or €15 million, in aggregate, for the subcontractors. Is that correct?

Mr. Gerard Cahillane

There are various figures floating around, from €5 million or €6 million up to €20 million.

That is a small amount of money to be able to fix this. That money will be regained tenfold and 20-fold if these jobs and businesses are protected. Let us not be short-sighted about it in allowing them to go to the wall. We need to protect the businesses and do everything we possibly can, even within our silo-institutionalised thinking as it is at the moment, to make it cost-neutral. It would be cost-neutral to the State, if not even swayed in the other direction where the State will benefit from ensuring these businesses can continue. If this problem is not solved, the social welfare bill will be enormous, and would have to be offset against the €14 million or €15 million it would require. There is an urgency and immediacy to this issue. Communities and businesses are being split and it is unfair. The State agencies that are involved in this can solve this problem before the end of the week by sitting down and ensuring the subcontractors who have already provided services and equipment for this are paid.

Mr. Cahillane referred to somewhere between €5 million and €6 million to €20 million. Does he have no oversight or knowledge, other than hearsay or what he might have seen on "Prime Time" or what might have been mentioned here regarding various contractors, that is, about €250,000 and €16,000 or €60,000? Does he not know?

Mr. Gerard Cahillane

Correct.

Is there a move by anybody in the NDFA or the Department to try to quantify the magnitude of who has been let down?

Mr. Gerard Cahillane

No. In short, that is because we understood there might be 160 subcontractors but the number has now inflated to 400 subcontractors. They had a relationship with Sammon and it is the Dutch Infrastructure Fund, DIF, which now has those records.

Does the NDFA still have an arrangement with DIF through PPP Co?

Mr. Gerard Cahillane

We still have a contract with DIF through the PPP Co.

Is it within the NDFA's remit to ask DIF and PPP Co, which the contract is still with, for a list of those whom they believe are outstanding and unpaid?

Mr. Gerard Cahillane

We do not have a relationship with the subcontractors.

I accept that but it is not the question. The NDFA has a relationship with DIF.

Mr. Gerard Cahillane

Yes, we do.

DIF and Carillion were PPP Co originally, is that right?

Mr. Gerard Cahillane

Correct.

Carillion was part of PPP Co, which survives.

Mr. Gerard Cahillane

Yes, it was 50% of it.

That is what I was clarifying. It was my analysis of it. DIF took over the 50% involvement of Carillion. DIF is now effectively 100% PPP Co, is that correct?

Mr. Gerard Cahillane

That is not quite correct but DIF is-----

It is not far off.

Mr. Gerard Cahillane

-----in control of PPP Co, with the funders.

There are funders, as well as DIF, and they-----

Mr. Gerard Cahillane

Correct.

-----make up the gap Carillion left behind.

Mr. Gerard Cahillane

The funders have put most of the money into the project.

If the NDFA wishes to use it, which is not the impression I have, there is a relatively easy mechanism in place to quantify the amount DIF believes to be outstanding. This would allow us to put a figure on the table and the subcontractors could either agree or disagree with it or argue for or against it. Let us at least quantify exactly what is involved here, whether it is €20 million, €14 million or €6 million or whether the biggest sum owed to a contractor is €250,000. To a small business that might earn €10,000 in net annual profit, €250,000 equates to profits for 25 years, which is the length of the contract for the schools bundle in question. These companies do not make much money after they have paid their expenses, local authority rates and rents and paid USC and employer's PAYE on behalf of workers. As Mr. Cahillane outlined, the margins are very small. I stand to be corrected but I understand, after three days of considering this issue in this committee, that €250,000 is the largest amount of money outstanding. Will Mr. Cahillane give a commitment to ask DIF and PPP Co, which he acknowledged are effectively the same, for a list of the moneys they believe are outstanding in respect of Carillion?

Mr. Gerard Cahillane

We can certainly do that.

Will the NDFA supply the committee with those figures?

Mr. Gerard Cahillane

Our priority is getting the facilities-----

I accept, having been here for the past two and a half hours, that the priority is to get the schools open. There are many people in the Gallery, and I am sure others are watching proceedings, who may not be able to buy new school uniforms or books for their children this year because they have been let down. They thought they were entering into a deal to build schools for the State. What better guarantee can a business have than working for the State?

Mr. Gerard Cahillane

We will certainly take up this matter with DIF.

Will the NDFA supply the figures I requested?

Mr. Gerard Cahillane

We will discuss whether we can release the figures. Perhaps the liquidator is the more appropriate entity with which to take up this matter.

That may be the case but the liquidator is not here. Representatives of the NDFA, a State organisation, are before the committee with officials from the Department of Public Expenditure and Reform. We are trying to reform the public service and how public expenditure is managed by having one person assume the roles of Minister for Finance and Minister for Public Expenditure and Reform. I know of plenty of people who have been subcontractors to main contractors working for various agencies of the State and have been let down to a greater or lesser extent. They had to take the hit because, as specialist subcontractors, they needed to get similar work in future. If they had walked away and decided not to deal with the State again, they would not get any further work. We saw the size of Carillion, which had 42,000 employees and was a significant business before it went wallop. People take the hit when the main contractor fails.

It is not right that the system allows Carillion and other main contractors to obtain money from the State and then let down the subcontractors who are doing work on schools, Garda stations, courts and universities, from which all of us will benefit. I know of examples of subcontractors being let down to a greater or lesser extent because extras were added on or payment was delayed. While they did not go under as a result, they were not far off it, certainly during the crash. The Department must find a model that protects the funding. I am aware of the argument that the risk is transferred in these contracts. That would be great if it were the case, but the risk is transferred to the poor subcontractors who are then left behind. That is what happened in this case. It is not right that we pay out large amounts of State money to companies such as Carillion which then let down their subcontractors. I understand the State has paid out 85% of Carillion's money. Is that correct?

Mr. Gerard Cahillane

It is correct that about 98% of the money due to Sammon Contracting was paid.

Did the State pay Sammon or Carillion?

Mr. Gerard Cahillane

The State has paid zero to date.

To whom was-----

Mr. Gerard Cahillane

The funders, namely, the two banks and the equity, have paid for these facilities.

PPP Co, which was DIF and Carillion combined, paid Sammon Contracting about 98% of what it was due.

Mr. Gerard Cahillane

The Deputy is correct that Carillion paid.

The argument that Sammon Contracting got caught up in Carillion is not, in Mr. Cahillane's opinion, the reason Sammon got into trouble.

Mr. Gerard Cahillane

The issue here is Sammon.

Sammon ultimately dealt with the PPP Co, which was DIF and Carillion. It got 98% of its money, did not pay others and went into liquidation. As a result, desks in schools have not been paid for. Whatever about testing and certifying floor surfaces and electrical works, I do not believe there is any certification process for school desks. If there is one, I am not aware of it. It is wrong to say that we have-----

There is a title issue.

I agree there is a title issue, rather than a certification issue. A sum of €250,000 would be significant for any company providing school desks because such businesses are generally not large.

As someone who happens to be the chairman of a board of management of a school, I am familiar with the running of schools and the costs involved. I also know that people in PPP schools cannot change the time on a clock on a wall or put a nail or tack in a wall because the facilities management company has to do all of these things. That is the way it is and some people like it and some people do not. Under the current system, a main contractor is given a large amount of money and can then let down subcontractors. This is wrong and a different approach is needed. Payment should be made in a staged way on foot of the subcontractors involved indicating that they have received their entitlements up to a certain point. While there will still be timing issues, subcontractors will not lose the full amount owed, as occurred in this case where large amounts appear to be outstanding. Perhaps some sort of bond or insurance mechanism could be used, similar to the Home Bond model used in construction in the past. There must be other ways of doing this, which do not leave the smallest, most vulnerable businesses at a loss. It is all very well for Apple and Google to lose €250,000 because large companies would notice it. Small companies have lost significant amounts of money. The process needs to be examined.

Is it the case that the NDFA will engage with DIF to try to have the amounts owed paid?

Mr. Gerard Cahillane

That is correct.

The committee has had three days of hearings on this issue. The NDFA and some of the companies affected by this case have given evidence. The "Prime Time" programme also dealt with the issue. Can Mr. Cahillane give the people who are owed money any hope of getting some of their money back? I do not want him to give them false hope.

Mr. Gerard Cahillane

I do not want to be disingenuous. I cannot give them any particular hope.

I thank Mr. Cahillane for that answer. While it is not an answer I like, at least he gave me one.

An interdepartmental group was established in 2017 to examine public private partnerships. I presume that occurred before the collapse of Sammon Contracting?

Mr. Paddy Howard

Yes, the review we did was part of the development of the national development plan in 2017.

I see in the opening statement that it was before Sammon Contracting's collapse. Did the interdepartmental group examine what happened in bundle 5?

Mr. Paddy Howard

It did not do so in any detail. There would be a small reference to it in the analysis report.

Mr. Gerard Cahillane

Mr. Howard, in his opening remarks, referred to a review of public private partnerships. However, the review did not take into account what happened in this specific case.

Mr. Paddy Howard

To be absolutely clear about this, that was not intended either.

It did not do so.

Mr. Paddy Howard

In the course of today's discussion, I indicated that we would expect, when the dust has settled in this case, to look at that to see if there are any penalty points that might emerge.

In his opening remarks, Mr. Howard indicated the Department had commissioned an interdepartmental group in 2017 to review the experience of PPPs and report to the Minister. The report was commissioned before the case emerged. I take Mr. Howard's point that, in the fullness of time, the Department may examine this case. The report, which was published only yesterday and sets out its main outcomes in four bullet points, does not take into account the case we are discussing.

Mr. Paddy Howard

To be clear about it again, the findings of the review group were published as part of the national development plan last February. What we published yesterday is the analysis behind that.

We put it up in order to be-----

However, it really has no relevance to this particular example.

Mr. Paddy Howard

It does not apply to this particular example. It is simply to explain where we stand with PPP policy.

Obviously, we are talking about this example - bundle 5 - and the effects of the collapse of Sammon, particularly on the subcontractors involved. Sammon's collapse is arguably the result of Carillion's collapse. Mr. Cahillane suggested that he does not necessarily think that was the case. Mr. Howard's opening remarks were grand, and quite interesting in their own way, but they are really not relevant to what we are discussing.

Mr. Paddy Howard

They are not directly relevant to Carillion, but the invitation we received was asking about our role. What we set out in our opening remarks was the role of the Department in respect of PPPs.

Very well. However, the witnesses do not really have anything to say. The final paragraph indicates that the main priority regarding Carillion is to open the schools.

Mr. Paddy Howard

Yes.

This section is five lines in length and more or less says that the Department of Public Expenditure and Reform wants to open the schools. In other words, we should move on, forget about whoever is hurt by the whole thing, get the schools open and get the pupils and teachers into their accommodation. Of course, we do not want schools that were paid for by the State to remain closed. Equally, we do not want people to end up laying off all their staff. Value for money is all very good if it is value for money. If we want to privatise the risk and pay a bit extra, so be it. However, we have ended up with the risk coming back on the State and with businesses going bust. Presumably, if they go to the wall, those companies will not be paying Revenue or their staff and will not be making pension contributions. They will lay off people who will then report to their local social welfare offices. It is a very bad model whereby we give out money to a main contractor who then does not pay the subcontractors and for us then to state that we have no blood on our hands and no responsibility and that it is up to the subcontractors to take out private insurance. Does Mr. Howard not agree?

I ask the Senator to note the time.

I thank the Chair. I do not think I have gone on too long.

The Chair might think so, but-----

I am the Chair. I ask the Senator to wind up.

I will wrap up in a moment. Does Mr. Howard not agree that there should be an examination of the way PPPs are working in light of what has happened to Sammon? The report, the findings of which were published by the Department a few months ago - with analysis published yesterday - does not take Sammon into account. Another report needs to be compiled in respect of Sammon. The same thing could happen again when a PPP is commissioned and the State pays out big money to a main contractor. If we have learned anything from this, it is that the system did not work and that we need a review in order to discover how we can protect subcontractors better.

Mr. Paddy Howard

I have mentioned a few times in the course of proceedings that we intend, once the dust has settled, to see if there are any policy issues that arise from the case of Sammon. Without trying to anticipate that analysis, I note that some points might come up about the PPP framework and that others may simply be general points relating to company law and other matters. Although this happens to be a case involving a PPP, very similar considerations to those we are applying here would arise if it was a traditional procurement or if it was simply a private contract. We intend to hold a review once the dust has settled. I make that point in order not to be disingenuous. Some of the issues here are not particularly about the PPP framework per se.

I accept that. I thank the Chair for indulging me somewhat. It is not really legitimate to say that just because it could happen in a non-PPP scenario, it is all right for it to happen in a PPP scenario. The witnesses represent the Department of Public Expenditure and Reform. When State money is paid out, the Department should ensure that the people who did the work get paid for it. That applies whether the expenditure is in a PPP framework or otherwise. In a private context, that is not the Department's responsibility. It is for somebody dealing with a private business to deal with. However, when public money is spent on behalf of all of us, supposedly for the benefit of the people, we should look at mechanisms to protect everybody in the supply chain. It cannot be that one fellow can take all the money, run off and go wallop, and then all the people down the line who have done work for the State are hit by it. I thank the Chair.

I was asked a question and I need our guests to clarify the position on the matter to which it relates. Retention money is a deduction from moneys earned, agreed and invoiced and is held by others. Who is holding that money and why? When will it be returned to its rightful owners and what can the Department do in this regard? That question was put to me and I am wondering if either Mr. Cahillane or Mr. Howard can answer it.

Mr. Gerard Cahillane

There was certainly some retention money held back by the PPP company. I think the amount involved was in the region of 1.5%. That is now a matter for the liquidator.

It goes to the liquidator. It is very disappointing to hear that again today. Deputy Pearse Doherty referred to the cutting of ribbons. We all want the schools open. The Minister has indicated that he cannot intervene. I am sure, however, that on the day the schools open, he will be there to cut the ribbon. We have been informed that he cannot interfere and that nothing can be done. I assure the committee that when those schools are opened, no one is more certain to be in attendance than the Minister and the various Ministers of State in the Department. They will all be trying to cut the ribbons. We are fighting to get subcontractors the money for which they worked and which they used to pay for materials. The position is just unacceptable. It is very disappointing that the Dáil has gone into recess and that this matter is no further along. We know that legislation needs to be passed because the system is flawed. We are no further on and a commitment has not been given to the subcontractors. In that context, I have again asked about the retention money that has gone into the liquidation.

These proceedings have not brought us much further along. Hopefully, we will get this resolved because that is what needs to happen. We all want the schools to be opened. We all want to the ribbons to be cut. However, the latter cannot happen unless we get a commitment that the subcontractors will get the money they are due for work that they have done and materials they have supplied. I hope the Department will look at this matter in a different light and that the officials will come back to us with something substantial.

I ask Senator Conway-Walsh to clarify the proposition that she made earlier. I wish to bring proceedings to a close and we must deal with that first.

I proposed to refer the statutory audit market to the Competition and Consumer Protection Commission, as has been done with the big four accounting firms in Britain. I call for an examination of the competition in that market and the conflicts of interest arising from firms being paid for a service and their auditing role.

Is that agreed? Agreed.

Our guests are to supply us with a list of people in respect of whom moneys are outstanding.

What is the monetary value of the 1.5%?

Mr. Gerard Cahillane

It is more than €1 million.

With the agreement of those present, I ask the clerk that, when completed, the transcript of this hearing be sent to all the relevant agencies in order that the witnesses can look through them and respond to the questions in respect of which detailed answers were not provided today. Alternatively, witnesses may wish to provide the committee with more detail or information than was in the answers that were provided. I also suggest that the committee send the transcript directly to the relevant Ministers in order that they can see what transpired at this hearing.

The main issue raised by the members is the need for some mechanism to pay the subcontractors. That came across absolutely clearly. That is what they want to achieve. The Department of Public Expenditure and Reform is the line Department for the Comptroller and Auditor General. Is that correct?

Mr. Paddy Howard

I would have thought that the Comptroller and Auditor General reports to the Oireachtas.

Let me inform Mr. Howard that his Department is the line Department.

Mr. Paddy Howard

Very well.

It is responsible for the legislation.

Mr. Paddy Howard

It is responsible for the legislation, yes.

The Department is answerable to the Committee of Public Accounts and is responsible for the various reports that go between that committee, the Comptroller and Auditor General and the various Departments.

The Department of Public Expenditure and Reform has a central role in accountability. I ask the committee to support a request that the Comptroller and Auditor General look at this and provide us with a report. I am simply informing the Department of that. It needs to be done urgently and I think the committee will recommend that should be the case. Mr. Howard said that the Department's position is protecting the taxpayer. I echo what Senator Conway-Walsh and others have said in respect of the payment of social welfare to those who may lose their jobs and the tax foregone from what the subcontractors would have paid. Those issues need to be looked at in finding a solution which everyone can support.

Mr. Cahillane mentioned suppliers giving notice. He referred to those with a note on the end of their paperwork saying that it was not the customer's property until such time as it was paid for and giving notice of that aspect of their contract to the companies involved. I am giving the Department notice that JAGGO Limited in Carlow and Walsh's in Kilkenny have such notifications on their paperwork. What is going to happen to the furniture that is not paid for that has that proviso in the contract itself?

Senator Horkan asked for the list of moneys due. I ask the Department to do that but, if for any reason that cannot be done, will it give a clear indication of the numbers of subcontractors involved and the amount of money relative to each subcontractor? The names can be redacted if the Department wants to do that but provide us with the details of the amounts of money owed to these individuals.

On the subcontractors and the investors, or the banks, involved, the time has come in Ireland when the banks should be given a good decent haircut rather than the subcontractors. It is time that the institutions were made to pay. In this case, I suggest the Department seeks further legal advice in respect of KPMG and the information that the Department relied on. If the Department cannot bring KPMG to court, it might be able to bring to court those that relied on that information and that gave it to the Department. The Department said that was, at best, misleading. We cannot ignore that. It has to be examined in far greater detail.

I thank all the witnesses for coming. I acknowledge the subcontractors here are representing a far bigger group and I appeal again to all parties to bring some common sense and a conclusion to this. We as a committee will not finish with this today. This is unfinished work that members will want to return to in the interests of fair play. This joint committee is adjourned until further notice. The select committee is scheduled for 9.30 a.m. on 20 September.

The joint committee adjourned at 2.04 p.m. sine die.