Bernard Durkan (Kildare North, Fine Gael)
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49. To ask the Minister for Public Expenditure and Reform the extent to which he and his Department have identified new or serious issues likely to impact on economic performance with particular reference to public expenditure, procurement or such matters; and if he will make a statement on the matter. [2078/22]

Michael McGrath (Cork South Central, Fianna Fail)
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The Revised Estimates for Public Services (REV) 2022, published by my Department in December set out allocations at Departmental level of almost €83 billion to Departments, with a further €4.6 billion held in reserve, primarily to address the continued challenges posed by Covid-19 and Brexit, to be allocated during 2022.

This funding provision is in line with the agreed medium term expenditure strategy to 2025 set out in the Summer Economic Statement (SES). This strategy aims to meet key challenges facing us in the short to medium term, allowing us to invest in our economy and society to deliver improvements in infrastructure and public services, while reducing the deficit in order to underpin the sustainability of the public finances as we emerge from the pandemic.

Provision for up to €7 billion has been made to respond to Covid-19 in 2022, with €3.1 billion of this already allocated and a further €3.9 billion in reserve. The careful phased withdrawal of Covid-19 supports is essential both to support society and the economy to recover from the impact of the pandemic and to return our public finances to a sustainable position, and it will be important that further supports are targeted at where they can have the greatest impact.

Given the significant level of resources to be provided for both core and temporary spending, an ongoing and enhanced focus on value for money is required.  We must ensure that there is the capacity to deliver the significant level of investment being provided and build on the budgetary reforms already in place to drive spending efficiency and effectiveness.

Regarding procurement, supply chain issues along with potential inflationary pressures have been well publicised. The last quarter of 2021 showed steep rises in the price of energy. The causes of such increase are many and include unseasonably low temperatures, geo-political tensions and increased demand.   The price of natural gas and electricity remains very volatile.  If higher energy prices are sustained, it is likely they will lead to price inflation in other sections of the economy.

With regard to construction procurement, the past 12 months has seen significant and sustained increases in the prices of a broad range of commonly-used goods and materials in the construction sector.  In addition, supplies are constrained for certain materials. The causes are many, are global and mostly related to the disruption caused by the pandemic.  

The current pricing and supply volatility is evidenced by increases in tender prices, a reduction in the numbers of those participating in tenders, delays in the award of contracts as tenderers withdraw and delays to projects where key materials cannot be sourced as readily.

It is not yet evident as to the duration of these market conditions, the potential for further volatility or price increases, or whether prices of some materials might return to prior levels.

In response to these uncertain conditions interim amendments have been introduced to provide greater certainty to contractors as to the extent of price inflation that they are expected to bear.  These include:

1. limited indexation of the tender price to cover price increases to materials in the period between the submission of the tender and the award of the contract

2. a reduction in the fixed price period once the contract has been awarded to 24 months

3. provision for the contractor to seek an adjustment to their price once the contract has been awarded should the price of a particular material when purchased increase by more than 15% on its price at the time the contract was awarded.