Billy Kelleher (Cork North Central, Fianna Fail)
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265. To ask the Minister for Public Expenditure and Reform further to the introduction of the new sectoral employment order, SEO, for the construction sector on 19 October 2017, if State contracts signed by companies following a successful public tender award in which the previous SEO was in place and the project costs built into such contracts as a result have to be re-examined following the new SEO; if changes to labour rates of pay are now applicable; if his Department has been contacted by companies in this regard; and the impact this may have on small businesses. [24333/18]

Paschal Donohoe (Dublin Central, Fine Gael)
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Sectoral Employment Orders (SEOs) are established in accordance with the Industrial Relations (Amendment) Act 2015 (the Act). An SEO imposes minimum rates of pay and conditions of employment for specified categories of workers. Employers employing the specified categories of workers must comply with the provisions of an SEO covering the sector in which they are operating.

Registered Employment Agreements were the previous means of establishing minimum rates of pay and conditions of employment in certain economic sectors. The manner in which these agreements were registered was struck down by the Supreme Court in 2013 leaving the National Minimum Wage as the only wage rate enforceable by statute.

To date, my colleague the Minister of State at the Department of Business, Enterprise and Innovation has signed into law two SEOs that cover workers in the construction sector: SI 455 of 2017 covering the construction sector on 19 October 2017; and SI 59 of 2018 covering the mechanical engineering building services contracting sector on 6 March 2018.

All public works projects that are delivered under the Exchequer-funded element of the Government's capital plan must be procured in accordance with the provisions laid down in the Capital Works Management Framework (CWMF). The CWMF is mandated by circular and was developed to assist contracting authorities in meeting their ongoing procurement requirements. It provides an integrated set of contractual provisions, guidance material, technical templates and procedures which cover all aspects of the delivery process of a public works project from inception to final project delivery and review.

The conditions of the public works contracts which are used for the delivery of the majority of building and civil engineering projects are fixed price, lump sum contracts. This requirement is key to ensuring greater cost certainty in the delivery of the public capital programme. When tendering public works contracts, contractors are expected to take account of cost increases due to inflation up to the project’s completion. On projects with long delivery programmes, an adjustment to the contract sum for inflation is possible but only after the pre-determined fixed price period has elapsed.

In order to take cost increases due to inflation into account when pricing a project it is accepted that a degree of foresight is required on the likely increases in the input costs such as labour, materials and plant over the duration of the project.

Whilst it is the case that there were no transitional arrangements introduced when the SEOs were signed into law, nonetheless there was an 11 month process leading up to the establishment of the first SEO in October 2017.

In November 2016 an application was made to the Labour Court by the Construction Industry Federation (CIF) to commence the process. As a body who represents significant numbers of employers in the construction sector it must be presumed that this application was made with the knowledge of its members. An invitation for submissions by interested parties was published by the Labour Court in February 2017. This was followed by an invitation from the Labour Court to an oral hearing on 26 June 2017 to those who made submissions. Having concluded its deliberations, the Labour Court issued a recommendation to the Minister for Business, Enterprise and Innovation on the 13 July 2017 which was published shortly thereafter and was picked up in various national media outlets. The Minister, having accepted the recommendation, submitted a draft order to both Houses of the Oireachtas and it was signed into law on 19 October 2017 after a resolution approving it had been passed by each House.

Wages in this sector have experienced increases in recent years as evidenced by average increases of 6% year on year in the biannual tender price index published by the Society of Chartered Surveyors in Ireland since 2014. The foregoing would suggest that contractors should have been taking wage inflation into account when tendering for construction contracts; public or private. Indeed the SCSI tender price index would suggest that contractors havebeen taking wage inflation into account in pricing work.

Circular 08/2018 was issued on 24 May 2018 through the Office of Government Procurement (OGP) which sets out the amendments that have been undertaken to the CWMF to reflect the introduction of the SEOs in the construction sector. These amendments will apply to tenders and contracts that are commenced after the periods set out in the circular and do not change the fixed price nature of the contracts.

I have received representations from the CIF, fellow Ministers and Deputies on behalf of contractors operating under the public works contracts. The correspondence has identified the difficulties being experienced by those contractors whose tender prices did not account for the increased cost of labour represented by the introduction of the SEOs.

The conditions of the public works contract have been in general use since 2007 and industry is well aware of the fixed price requirement. It must be assumed therefore that this issue has arisen due to a lack of awareness of the process that was being undertaken and this is something that I will bring to the attention of my colleague the Minister for Business, Enterprise and Innovation.