Seán Canney (Galway East, Independent)
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88. To ask the Minister for Public Expenditure and Reform if he intends to introduce a new public works contract for the construction industry to ensure the risk in these contracts is shared in an equitable way; and if he will make a statement on the matter. [29034/22]

Seán Canney (Galway East, Independent)
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I raise the issue of public works contracts, which have been in place since 2007. I acknowledge the Minister's efforts in introducing a variation to the contracts for the unreal price increases that have happened. However, I fear that if the contracts are not overhauled, we will have serious issues in trying to get contractors to do work for us. Are there any plans to reform them or introduce proper contracts?

Ossian Smyth (Dún Laoghaire, Green Party)
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As Minister of State responsible for public procurement, I will be taking this question. The public works contract was introduced in 2007 in response to significant cost overruns on public infrastructure projects and must be used for projects that are delivered under the Exchequer-funded element of the national development plan. Contracting authorities are expected to ensure projects are comprehensively designed to enable contractors to price with greater certainty and account for any risk that is transferred under the contract. The contract, which is a key component of the capital works management framework, CWMF, has undergone significant reforms over the years since it was introduced, and the level of risk contractors are expected to carry has been reduced in a manner that is proportionate and in line with market developments. The most significant review was conducted in 2014 and it has undergone a series of further refinements since then. It continues to be amended when appropriate.

Most recently, in January 2022, in response to materials price increases not seen in over a generation, amendments were made to reduce the level of inflation risk transferred. By March it was clear a further intervention was necessary in light of the growing inflationary pressures and uncertainty in supply chains brought about by the war in Ukraine. In May, the Minister and I introduced the inflation and supply chain delay co-operation framework after extensive consultation.

The contract is but one element of the CWMF. In March 2019, a much broader review of the policies and practices deployed in the procurement of public works projects commenced and is ongoing. The focus of the review is on improving the delivery of construction projects in terms of quality, timely delivery and outcomes and will result in significant changes to the CWMF over the coming years. It should be read in the context of a suite of measures, including the review of the public spending code; the establishment of the commercial skills academy to provide relevant training for people involved in public procurement; a review of productivity in the construction sector; and a review of the capacity of the public sector to deliver the national development plan. All of these taken together will improve the performance of the construction and operational phases of a project. The CWMF review involves extensive engagement, with both industry stakeholders and the public bodies charged with the delivery of public works projects on a range of issues, including price variation; risk management; reflecting quality in the award of contracts; the adoption of building information modelling, BIM, on public works projects; liability, indemnity and insurance requirements; performance evaluation; and encouraging collaborative working.

Seán Canney (Galway East, Independent)
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The Minister of State said a lot there. I will give him some facts. Right now, the construction industry is in free fall. Contractors are not going to price public works contracts as they stand at the moment. It is a particular risk in the engineering contracting. The Minister of State, Deputy O'Donovan, is here. This also affects flood relief schemes, where there is an enormous risk in taking on one of these projects. Civil engineering contractors will not take them on because they cannot price the risk and the risk is not seen. A lot of the work is in water and rivers and cannot be seen. I have tried to elicit this information from various Departments.

Since the contracts were introduced, what has the performance been in terms of delivery on time, the cost and the overruns? There is also the cost of litigation, arbitration and the claims environment that now exists within the construction industry. How is that being costed into each project? I saw a project from the HSE that was 60% over the tender price. Some of that was probably due to additional works but a lot of it was contractual claims. The head of one contracting authority told me last week that before a project starts, the first thing that goes on site is a Portakabin and into that go quantity surveyors who start the claims process against the contracting authority. We have an adversarial industry and we need to correct that as a matter of urgency.

Ossian Smyth (Dún Laoghaire, Green Party)
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Two major changes have been made to counter the new problem of inflation that has arisen as a result of the Ukraine war. First, the contract template is meant to take inflation into account. That is not just the consumer price index, CPI, but the sub-indices of inflation that apply to that contract. If there is a particular material involved, such as concrete or wood, that sub-index will be taken into account. That is a risk transfer whereby some of the risk is being taken by the State rather than the contractor. If all the risk is transferred to the contractor, the bid would have to be very high and may result in people not being able to bid. Where somebody has taken on a contract, they may find they cannot feasibly complete it without their company folding or becoming insolvent. It is with that in mind that we changed the template. We also made retrospective changes whereby contracts taken out since the start of the year were compensated with a view to preventing those contractors from ceasing operation, where it could be shown that contract was suffering from material price inflation.

Seán Canney (Galway East, Independent)
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I accept that, but when we think about how to have a collaborative industry in which contractors and the contracting authorities will work together, we need to look at what has been established in other jurisdictions such as the UK, where there is the new engineering contract, NEC. In that case, there is risk-sharing and more is got out of the contract.

The Minister of State referred to building information modelling, BIM. That is for the large contractors, but what about the small contractors that build one-off houses, an extension or a housing adaptation? They have to comply with the same criteria within the public works contracts. It is unfair and totally wrong that this contract amounts to an albatross around the necks of contractors, the construction industry and the public money going into it. A lot more money is being spent but, in my view, we are not getting the jobs built on time or to budget. The cost is being masked by the arbitration and the claims that go on within contracts. We need to look at this in a more realistic way.

Ossian Smyth (Dún Laoghaire, Green Party)
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We have a collaborative system of working with the construction companies and their representative bodies. We want to avoid an adversarial situation; that does not work for anybody. We cannot end up in court or in disputes. With that in mind, I meet representatives of the Construction Industry Federation every quarter and I am in regular contact with people such as Sean Downey in order that I can ensure their concerns about how construction contracts with the State will be taken into account, that we will have a practical framework for co-operation and that our projects will be delivered on time. That is under constant review. At the moment, a working group of representative bodies of employers, including the Construction Industry Federation, is reviewing the guidelines for public construction contracts.

We absolutely need to work with the industry. We do not want to be in an adversarial position and we are not in one. We are in constant communication, as recently as within the past week.