Mr. Eddie Taaffe:

I am the programme co-ordinator with the housing delivery co-ordination office, HDCO, in the Local Government Management Agency, LGMA. I am also the CCMA nominee to the Government construction contracts committee, or GCCC, hosted by the Office of Government Procurement, OGP. I am accompanied by Ms Margaret Geraghty of the LGMA's housing delivery co-ordination office, which co-ordinates the delivery of social and affordable housing by local authorities. On behalf of the CCMA, I thank the committee for its invitation to the meeting today and I look forward to assisting the committee in its discussion of construction costs in housing.

All local authorities, along with AHBs, perform an extensive range of housing services, including a multi-billion euro programme of new social housing construction across all parts of the country. A variety of procurement methods is used to deliver social and affordable housing, ranging from traditional employer-designed projects, using public works contracts to design and build, to public private partnerships, joint ventures, competitive dialogue and turnkeys. Since the end of the last Covid-19 related suspension in construction work in early 2021, building contractors involved in housing construction for local authorities and AHBs have experienced delays, disruption and uncertainty with material supplies and material costs. While towards the end of 2021 delays and uncertainty in material supply chains had appeared to ease somewhat, the uncertainty and volatility in construction materials have, if anything, significantly increased since the start of the year.

Until the end of 2021, the public works form of contract was essentially a fixed-price form of contract. However, given the level of material price increases seen in 2021, the OGP modified the standard forms of contract in January 2022 to allow tenderers to recover material price increases in excess of 15%. The construction sector has reported that the rate of material price increase accelerated in the first quarter of 2022 and was also seriously impacted by energy price increases from March. Local authorities' experience since the start of the year is that a significant number of contractors involved in social housing construction were experiencing negative financial impacts from increased material costs and in several instances had indicated that, reluctantly, they would not be in a position to continue to deliver housing on a fixed-price basis. This situation was particularly prevalent in small to medium sized builders who, local authorities believe, have less scope to absorb costs. This experience was also prevalent in turnkey type projects which, heretofore, have also been fixed-price in nature. Furthermore, local authorities were also seeing a marked decline in the number of tenders being received for house construction projects. There is a sense that some building contractors were opting not to tender for projects until there was greater certainty both in terms of increasing material costs and also in anticipation of a change to the fixed-price tendering system. This has the potential to reduce delivery in 2023 and 2024.

The HDCO, on behalf of local authorities, submitted examples of those issues to the Department of Housing, Local Government and Heritage to assist Departments in their deliberations. Local authority housing capital teams welcome the measures announced by the Minister for Public Expenditure and Reform, Deputy Michael McGrath, on 10 May this year to address the impact of construction material price inflation on public works projects. The ability of contractors to recover 70% of material cost increases on contracts dated prior to 7 January and fuel-related cost increases on all projects brings a greater level of certainty to both contracting authorities and contractors operating public works contracts. Detailed guidance and templates have been published by the Office of Government Procurement, which will assist with clarity and consistency in the application of these new measures across the local authority sector.

To conclude, the delivery by local authorities of social and affordable housing under Housing for All, in co-operation with the construction sector, continues to experience issues relating to material price increases, supply chain delays and disruption, along with an increasing demand for skilled workers. However, it is hoped that the recent changes to the public works contracts will reduce the level of uncertainty and risk associated with material cost increases. These issues require close co-operation by all stakeholders for the foreseeable future.