Thursday, 19 January 2023
Ceisteanna Eile - Other Questions
Capital Expenditure Programme
120. To ask the Minister for Public Expenditure and Reform the total additional cost to the Exchequer in 2022 of the inflation co-operation framework in respect of the delivery of projects under public works projects; if the framework will be reviewed in 2023; and if he will make a statement on the matter. [2206/23]
I raise the operation of the inflation co-operation framework, an important innovation introduced by Government last year to assist contractors carrying out NDP projects and, more generally, capital projects with rising inflation in terms of energy and materials. Will the Minister of State give an update on the additional cost of that and if the framework will be reviewed in 2023?
The objective of the inflation-supply chain delay co-operation framework is to safeguard public projects that were under construction or tendered in advance of the onset of the exceptional inflation in the price of construction materials, fuel and electricity.
The framework facilitates both parties to a public works contract to engage with one another to address the impacts of exceptional inflation and supply chain disruption and operates on an ex gratia basis. The framework sets down the approaches and parameters within which parties to the contract may calculate additional costs attributable to material and fuel price fluctuations on an ongoing basis using price indices published by the Central Statistics Office.
The measures available under the framework strike an important balance between the additional costs incurred by the State to support contractors engaged on public projects and the State’s ability to deliver the NDP, including housing delivery, while providing value for money for the taxpayer.
The feedback received by my Department suggests that the parties are engaging and that agreements have been entered into for a substantial number of projects. While payments covering the cost of inflation are made monthly, once formal agreement is reached, the total additional cost attributed to inflation for each project will not be known until it is completed. The measures introduced are intended to operate until completion or until they are no longer required. Any increase attributed to inflation may be shared between the parties with the State bearing up to 70% of the additional cost. Any additional costs identified are to be met from within the capital ceiling allocations for each approving authority.
Information on costs is not collated centrally. Management and delivery of capital projects and programmes are a matter for the sponsoring agency and approving authority in each case. Similar to any process of Vote management, it will be the responsibility of sectors and accounting officers to assess whether existing timelines for the implementation of key projects will need to be adjusted on account of the framework implementation or if there will be a need for prioritisation within their existing five-year departmental ceilings.
Does the Minister of State have a figure for the additional cost across government given the Department of Public Expenditure and Reform has been renamed the Department for the delivery of the NDP, as well as having special responsibility in that regard? What is the additional cost, outside of what was agreed? The responsibility lies 70:30 in favour of the State. It is important to put on the record the additional cost involved. There is no doubt this was an important innovation. The difficulties contractors found themselves in last year were extraordinary. I looked at the figures earlier for construction price inflation. The cost of structural steel increased by 64.1% early last year and that maintained throughout the year. There was a 46.3% increase in rough timber. The problem is clear.
As the Deputy said, we looked at fuel price inflation, as well as at materials, the dramatic increases in construction prices, material inflation and supply chain disruption. In many cases, builders could not get the materials required.
We are not centrally collating the increase in the cost of these contracts. We have said each contracting authority is responsible for paying for its own increase out of its existing allocated budget so there is not an overall increase in the budget across government. We do not have a centrally collated number for that. Risk sharing is required. We have not said the State will take on 100% of the cost but 70%. That is because there has to be risk sharing. If we had not done this, major capital projects, including social housing projects, could not have been completed. We would have had to retender and the State would have paid more the second time around for the tender to be completed.
I find it extraordinary that neither the Department of Public Expenditure and Reform or the Office of Government Procurement is collating those figures centrally. It would be an important public policy measure that the Department would collate all the figures from the relevant agencies and spending Departments, at least to inform a review of the operation of the framework in 2023. This is about making sure the projects we depend on for the development of the economy and society are delivering but also, crucially, about value for money. The Minister of State mentioned value for money in his response and I cannot say with certainty that such value is being prioritised if the Department is not prioritising the collation of the relevant information to inform any review that might take place this year and to ensure the State is not being taken for granted by some rogue contractors.
The important principle is that the contracting authorities are responsible for their own budgets and responses. The Accounting Officer in each case is responsible for monitoring its own expenditure. The Department of Public Expenditure and Reform does not operate as a monitoring agency at a micro-management level to make sure that each contracting authority operates within its own budget. Each has a set budget on which there are ceilings and they have to operate within them. However, they are delegated the power to spend the money that has been allocated. Overall, this has been a successful and practical implementation of public procurement and has resulted in projects that would otherwise have been cancelled and would not have been completed within budget.