Damien English (Meath West, Fine Gael) | Oireachtas source

I thank Senator Gallagher for raising this issue. It is very important. We can all see the effects of inflation in costs in every part of construction throughout the country. We also want to protect the public capital investment plans we have made and rolled out under Housing for All, Project Ireland 2040 and others. There is to be a great amount of capital expenditure, over €10 billion a year, for the next ten or 11 years. It is important that we get the most out of that funding, stretch it and get the infrastructure delivered.

I am taking this debate on behalf of the Minister for Public Expenditure and Reform, Deputy Michael McGrath. I will outline some issues in response to the Senator's raising of the issue of construction inflation. There have been significant and sustained increases in the prices of a broad range of commonly used materials in the construction sector throughout 2021 in the aftermath of the pandemic. The Senator has outlined some of these. Energy prices also showed marked increases in 2021 and have further escalated in response to the Russian invasion of Ukraine. Both represent significant input costs for construction projects and inflation is a risk that contractors have been expected to bear under capital works management framework public works contracts for a defined period.

These inflationary provisions have operated effectively over the years since their introduction, albeit in times of relative price stability. However, the price movements experienced on construction materials over the past 12 months have arisen suddenly and with no warning. In response to this challenge, the Minister and the Office of Government Procurement, OGP, introduced a series of measures in January of this year to address the risk posed. The OGP issued procurement guidance in November 2021 to assist public bodies in managing the challenges they face in concluding live tenders. With reference to future tenders, the OGP published interim amendments to the provisions in the public works contracts on 7 January 2022. Within certain parameters, these amendments will reduce the level of risk of exceptional materials price inflation that contractors will have to bear, while also enabling the Exchequer to obtain cost reductions should exceptional price reductions occur during the course of the works. The measures are designed to encourage confidence in the tender process and to mitigate overprovision for price inflation in tender prices. However, as the Senator has said, these changes do not fully cater for the fuel and energy price increases and supply chain disruptions which have arisen since the Russian invasion of Ukraine. The pre-existing provisions for inflation contained in the public works contracts published prior to 7 January 2022 continue to apply as these were the terms entered into by the parties.

The OGP has been monitoring the inflation pressures faced by contractors, particularly with respect to the recent sharp increase in energy prices, and is engaging with stakeholders, including industry and public sector contracting authorities. The Minister, Deputy Michael McGrath, recently had a meeting with representatives from the Construction Industry Federation, CIF, at which the issue of contracts that were awarded prior to January 2022 was raised. The CIF advised that contractors who tendered with no knowledge of the inflationary pressures which have arisen since February 2021 are particularly exposed and are not in a position to absorb the increased cost of materials which have, in some cases, more than doubled in price since they submitted their tenders. In addition to its impact on energy prices, the war in Ukraine will further increase the cost of building materials. At the conclusion of the meeting, I understand that the Minister asked his officials in the OGP to prepare options to mitigate the risk posed to projects where contractors can no longer bear the increased cost of materials. In reviewing the options, the Minister will consider the available evidence and the potential impacts they will have on costs and the ability to deliver the wider national development plan while maximising value for money for the taxpayer.

It is vital that public works contracts remain a viable proposition for contractors with whom we partner in the delivery of the plan, whether in respect of housing, roads or any other infrastructure. The Minister is also engaging with key capital spending Departments and bodies to gain their perspective on the issues that are being raised with him. I see that we have a school group with us so I will note that this includes investment in our educational facilities across primary, secondary and third level because, while a large sum has been set aside to be invested, it is very important that all projects can be fulfilled and delivered. We must protect our investment in the infrastructure we want, including schools, hospitals and roads, but we must also help to protect the jobs and companies involved. That is the work the Minister, Deputy McGrath, in involved in. I will be able to update the Senator at an appropriate time in the coming weeks.