Bernard Durkan (Kildare North, Fine Gael)
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257. To ask the Minister for Public Expenditure and Reform the extent to which his Department monitors inflation in the construction sector with particular reference to the impact on the delivery and cost of major capital health projects; and if he will make a statement on the matter. [32771/21]

Michael McGrath (Cork South Central, Fianna Fail)
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The Construction Sector Group (CSG), established in 2018 and chaired by the Secretary General of my Department, ensures regular and open dialogue between Government and the construction sector. Its remit includes, but is not limited to, considering opportunities to introduce reforms within the sector that will help in controlling construction price inflation.

To support the work of the CSG an annual Build Report was produced by my Department in 2019 and 2020. The purpose of this report is to give a comprehensive overview of the performance and prospects of the Irish construction sector, based on the available official statistics and data. The report aids in monitoring of trends across the sector, ranging from output and investment to employment and cost inflation, so that risks and performance issues can be identified and addressed where necessary.

Inflation measures how much more expensive a set of goods and services becomes over a certain period of time. A number of measures relating to inflation in the Irish construction sector are detailed in the Build Report. The data included in the report is mostly obtained from the Central Statistics Office.

Two major costs for the construction industry are the cost of materials and the cost of wages.

Inflation in the cost of construction materials can be measured through the Wholesale Price Index. As for the wage inflation, this has been measured by monitoring average hourly earnings for the construction sector.

The Wholesale Price Index (WPI) for Building and Construction Materials provides a general indication of price trends in the sector. WPI essentially measures the changes in the prices of goods sold and traded in bulk. In April 2021 the WPI for Building and Construction Materials stood at 3.4% on an annual basis. However within this there are certain materials which have seen elevated levels of inflation such as timber and steel.

Average Hourly earnings for the construction sector (includes all employees of construction) increased by 9% between Q1 2020 and Q2 2021.

The Society of Chartered Surveyors Ireland Tender Price index reveals that national construction tender prices increased by 1.3% in the second half of 2020, up from 0.9% in the previous 6 months. The results indicate a slight rebound of tender price growth in the construction sector, with national annual inflation now at 2.2% (Jan 2020 to Dec 2020), however it is still significantly less than tender price inflation levels pre-Covid. The Index is the only independent assessment of construction tender prices in Ireland. It is compiled by the Quantity Surveying members of the Society. The Tender Price Index (TPI) is based largely on sentiment returns with actual tender returns included in the calculations. The TPI is for non-residential projects during the period in question. It is based on predominately new build projects with values in excess of € 0.5m and covers all regions of Ireland. The Index relates to average price increases across differing project types and locations.

Overall, while there was elevated construction sector inflation in 2019, construction price inflation slowed overall in 2020 as a result of Covid-19. Elevated levels of inflation possesses risk for the construction sector and wider economy as a whole by undermining value for money.

The impacts of this on the delivery and cost of major capital health projects is a matter for the Minister for Health. Under the delegated capital sanction provided to Departments each year they are expected to make programme and project contingency provision, factoring inflation along with other risks into their budgeting.

There is no cost adjustment available for inflation under the public works contractsuntil a period of 2.5 years after the contract is awarded. As part of the tender process contractors are expected to price for inflation which has typically been 5 – 7% per annum in recent years.