John Cummins (Fine Gael) | Oireachtas source

I thank the Minister of State at the Department of Housing, Local Government and Heritage, Deputy Noonan, for coming to the House to address this very important Commencement matter dealing with the exceptional costs and materials inflation which has occurred within the construction sector and its impact on public works contracts, particularly social and affordable housing projects.

It has been well documented that as economies reopened in the aftermath of the Covid-19 pandemic, significant inflation coupled with shortages in the supply of particular construction materials was experienced by the sector. The Russian invasion of Ukraine has exacerbated these pressures considerably. We have also seen significant increases in energy prices which are driving even further price increases and leading to great uncertainty around the delivery periods for certain construction materials.According to the main indices for building and construction materials, the significant movements in timber and steel prices experienced in 2020 have accelerated even further and broadened to include other materials such as plastics, insulation and electrical and plumbing fittings. The breadth of the price increases is in excess of anything experienced in the past decade and they continue to fluctuate almost weekly. The all-materials category of the detailed wholesale price indices for building and construction materials saw a 16.9% increase in the 12 months to the end of March 2022, with some subcategories such as structural steel and rough timber experiencing increases of 64.1% and 46.3%, respectively. As we know, energy prices showed marked increases in the latter half of 2021 and since January, they have increased even further. This has a direct impact on costs in the construction sector, particularly for those projects with a significant reliance on heavy machinery, while higher energy costs have an indirect impact through the increased costs of manufacturing and transporting materials, which is driving even further price inflation.

I acknowledge that as a consequence of the challenges experienced during 2021, amendments to address further price volatility were announced by the Government in November of last year but that these applied only to new contracts. The amendments did not address energy price volatility, the delays caused by supply chain disruption or inflation in respect of new materials that has occurred since then. They did not apply to projects that are currently on site. As a result, as the Minister of State will be aware, many housing projects throughout the country will come in at a cost well above that in the fixed-price contract, which was signed before the project got under way, through no fault of the developer. Many developers simply cannot afford to risk sustaining significant losses, so some builders have downed tools and withdrawn from sites, which, obviously, we do not want to see at a time of acute housing need. This is an area on which I have been calling for significant action over a sustained period, so I was delighted yesterday to see our Government colleague, the Minister for Public Expenditure and Reform, announce the introduction of a new inflation co-operation framework for those parties currently engaged in public works contracts. I understand it is intended the framework will operate on the basis that the State will burden-share the inflationary costs on a 70:30 basis with a developer after both parties have carried out an open-book exercise detailing the additional costs being experienced to bring the project through to completion.

I am sure the Minister of State will expand on that in his reply. In addition, he might explain what was announced yesterday and touch on how the 70:30 figure was arrived at and why it was not 60:40, for example, or 80:20 in order that I can understand the thinking of the Department.