DÁIL SPEECH ON REPORT ON PPPs AND CARILLION

I warmly commend the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on the production of a valuable report on the use of PPPs for public sector infrastructure projects. I thank the Chairman of the joint committee, Deputy McGuinness, and the committee secretariat for producing this report, which is particularly timely in the context of the liquidation of the Carillion group. The collapse of Carillion has significantly delayed the delivery of the PPP contract known as schools bundle 5 right up to the present. It raises profound questions about the continued use of the whole PPP process, which has tied the State into a system of large annual payments to PPP contractors until the 2050s or 2060s. The informative report before the House may be considered alongside the House of Commons report on Carillion, which is a devastating indictment of the PPP approach. We copied this approach from the UK Government, which refers to it as the private finance initiative, PFI.

At the time of the Carillion collapse, The Guardian responded to a report on the company by the UK National Audit Office by concluding that PFI schemes have “as they have evolved, simply not worked”. The leader of the UK Labour Party, Jeremy Corbyn, rightly refers to the dogma of privatisation which he claims has resulted in an outsourcing racket to the detriment of public infrastructure for the British people.

Carillion had approximately 43,000 employees, including 19,000 in the UK, when it collapsed in January 2018. One of the disgraceful results of this collapse was that it left a pension liability of the order of £2.6 billion. It also owed in the region of £2 billion to its 30,000 suppliers and subcontractors. Many of our companies and their workers were exposed in this regard. The liquidation of Sammon Contracting Ireland Limited on foot of the collapse of Carillion led to grave difficulties in the delivery of schools bundle 5 under an Irish PPP, including serious adverse impacts on subcontractors that worked on the project.

The House of Commons report castigates the management and governance of Carillion, the board of which included among its members Mr. Philip Green who was chairperson from 2014. Carillion’s business model is described in the report as an “unsustainable dash for cash”, with the company “choosing to pay out more in dividends than the company generated in cash”. The executives and the board are accused of a chronic lack of accountability. The culture within Carillion is described as “rotten”. Yet this company was chosen in July 2016 by the National Development Finance Agency, NDFA, to lead the Inspired Spaces consortium with the Dutch Infrastructure Fund, DIF, to construct schools bundle 5, ultimately funded by €250 million of State payments over a 25-year period. This is the debacle into which we have been led.

The House of Commons report especially emphasises the role of auditors in the Carillion collapse and the fact that KPMG audited Carillion for 19 years, earning £29 million in that time. Deloitte was responsible for advising Carillion’s board on risk management. It is clear that the auditors concurred with what the report refers to as the company’s “aggressive accounting policies to present a rosy picture to the markets”. Accordingly, I greatly welcome the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach’s focus in section 4.4 of its report on the role of auditors and due diligence procedures. The chairperson’s and the committee’s request that the NDFA liaise with its counterpart agencies in other jurisdictions on due diligence is timely and important. It is good to read also that the UK Financial Reporting Council, FRC, is conducting an investigation into KPMG’s audit of Carillion’s financial statements. Clearly, the Central Bank and the Office of the Director of Corporate Enforcement must also review the outcome of the UK investigation and its impact on subcontracting companies here.

We have learned from the Financial Times and other newspapers that the UK Government and the FRC are proposing that the so-called big four accountancy companies in the UK be broken up because of their predatory pricing of audits. The UK authorities also wish that financial consultancy work and auditing should be totally separate functions not carried out by the same company through Chinese walls. Will the committee examine the current regulation of auditing, recommend whether similar reforms are necessary and examine the dominance of the auditing market by the big four?

Section 3.3 of the committee’s report addresses the PPP policy framework and considers the findings of the 2017 Department of Public Expenditure and Reform’s review that PPPs should continue to be used, with an emphasis on value for money at procurement stage. It also recommends that a new and alternative model should be considered for future PPPs. However, we have not heard any response to this from the Minister of State. The committee correctly concludes that the PPP framework operates without the visibility and transparency required for the State to know whether those along the entire supply chain – including our subcontractors and workers – are paid appropriately for services provided. It also concludes that such full visibility and traceability of payments must be central to any future PPP contracts. The Minister of State did not address the central point about the 2013 legislation.

I strongly support this conclusion and also agree that the Department of Public Expenditure and Reform review prior to the Carillion and Sammon collapses must be revisited as a matter of urgency. Indeed, the whole PPP process is another kind of shadow banking but one in which the State is involved. Deputy Michael McGrath has also raised this issue of shadow banking in the context of car-leasing companies. That is why I believe the State should finance, construct and manage all major infrastructure projects for our people, including those relating to education, health, transport and public housing.

The State refused to take responsibility for regulating the construction of homes during the Celtic tiger property bubble. The role of the clerk of works in public contracts was abandoned. When I worked on Dublin County Council sites as a student, I knew the clerk was there to ensure that work was done properly. However, this model was abandoned by the Government led by Bertie Ahern. It is no wonder that section 3.4 of this report states that the certification of works is arguably the single most contentious issue to emerge in the course of the committee hearings. A certification of works is necessary in order for a completion certificate to be granted by the Buildings Control Authority and this certification is governed by the building control amendment regulations, BCAR, and the code of practice for inspecting and certifying buildings and works. It is striking that, even hearing from subcontractors, the committee felt that the current certification process may expose the State to future liabilities in terms of insurance cover and health and safety regulations. Again, the NDFA has a significant role to play in making this certification process more accountable. The committee supports what it calls a pragmatic and sensible approach whereby the PPP company and the replacement contractor, Woodvale in this case, engage with the original supply chain to secure the necessary certification.

I strongly echo the committee’s view in section 4.1 that there is a lacuna in legislation regarding the protection of payments and entitlements to subcontractors and their workers. Any review of the Construction Contracts Act 2013 will show that new multifaceted legislation is necessary for the proper protection of subcontractors and their staff. The losses in outstanding payments sustained by as many as 400 subcontractors in the schools bundle 5 debacle may total at least €14 million with a profound negative impact on smaller companies, their workers and families.

The need in section 4.6 of the committee’s report for a contingency fund is crucial. The State should at least take this step to protect subcontractors and front-line workers and suppliers. Any future winning consortium should be obliged to set aside such a contingency fund. This echoes a similar proposal from the House of Commons investigation into any future PFIs in the UK.

I commend Senator Alice Mary Higgins, along with her colleagues in Civil Engagement, Senators Ruane, Dolan, Colette Kelleher and Black, for bringing forward the Public Authorities and Utility Undertakings (Contract Preparation and Award Criteria) Bill 2019. I was delighted to see it pass Second Stage in Seanad Éireann. It will give further effect to the European Parliament Directive 2014/24/EU and Directive 2014/25/EU. It provides for the use of social considerations and best price-quality ratio as criteria in awarding public contracts. It would be a positive step forward if the Government weighed in behind it when it comes to this House.

I commend Deputy McGuinness and my colleagues on the finance committee, as well as the staff who prepared this report. I hope it will start an important debate to which the Government will respond with necessary legislative changes.