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Construction
Contractors on public works projects to be better protected by state from inflation
Announcing the measure, Paschal Donohoe said that the construction industry had faced significant challenges in the past two years.
MINISTER FOR PUBLIC Expenditure Paschal Donohoe and Minister of State with responsibility for Public Procurement Ossian Smyth have announced amendments to the Public Works Contract to ensure that contractors will face less financial risk from increasing building material costs.
The package aims to prevent contractors being adversely effected by increases in building materials that take place while they are delivering public works projects on behalf of the state or local authorities.
Contracting Authorities will now be required to provide for inflation above a pre-defined threshold in the project budget, rather than transferring that risk to the contractor.
In an example given by Donohoe’s department, a local authority could set the price variation for a project at 5% in its contract with a developer.
If steel increased by 12% on the relevant Central Statistics Office index for building material inflation, the contractor would get a 7% increase in payment for the steel used.
On announcing these changes, Minister Donohoe said that the construction industry had faced significant challenges in the past two years.
“Improving the risk/reward balance of public works contracts through the introduction of caps on liability and reform of the price variation mechanisms will encourage a greater level of competition for public works tenders,” he said.
“This will lead to an improved quality of bids received and maximise value-for-money, key priorities for my department in delivering the National Development Plan.”
“We continue to develop a comprehensive and agile response to the risk posed by exceptional levels of inflation and supply disruptions that create a challenging and uncertain environment for project delivery.”
Currently contractors may be compensated for inflation in excess of 15% for materials and fuel.
This threshold is being reduced to a range between 3-10% from which contracting authorities will select a level that reflects the project’s main inputs.
Minister Smyth also announced measures to allow contractors to more accurately record the amount of carbon used in construction.
Building Information modelling (BIM) is a process which takes into account the environmental impacts of decisions made about material selection, foundation design and energy use and production.
“Combined with the data handling capacity of BIM and the availability of greater levels of information on materials and building components, contracting authorities and their project teams can review a project’s environmental standing at all stages of its delivery lifecycle,” Smyth said.
“The information recorded can be used in the lifecycle of the asset to support decisions around sustainability and the circular economy.”
