The Construction Industry Federation (CIF) is calling for inspections to all contractors operating on all public projects to be extended.
The CIF said this would put an end to the work going to those misusing the system and ensure that legitimate operators were awarded work.
CIF Director General Tom Parlon said: "Most people will be aware that there is a shadow economy problem in the Irish construction sector still. So we were not surprised when the latest reports arose in the Dáil of this type of activity as we receive reports of this nature regularly from our members.
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"There are still a substantial number of contractors operating outside the law in this country – not paying their taxes, not meeting their employment obligations and using social welfare to help subsidise wages.
"This is hitting the legitimate contractors, specialist contractors and sub contractors who are missing out on projects because they are being undercut when tendering for work. That is not what the economy needs and it is not in the interests of the State. It is particularly galling when these problems occur on public projects – as was recently highlighted in the Dáil.
"The only way to stamp out this activity is to change the inspections regime and ensure that all contractors are being monitored. We also need to extend the inspections to all public projects."
Mr Parlon added that it undermines the legitimate contractors throughout the industry.
He continued: "On a wider basis we also believe that the Government needs to look at the way public construction contracts are awarded as part of the review of public procurement. If you award on a lowest price principle, as is currently the case, then you encourage abnormally low tenders.
"Abnormally low tenders involve corners being cut somewhere along the line – usually in the form of shadow economy activity of some description."
(CD/JP)
