Pádraig O'Sullivan (Cork North Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

137. To ask the Minister for Public Expenditure and Reform the extent to which his Department continues to monitor the progress of Government contracts; his views on whether the amendments to the Public Works Contracts in January 2022 aimed at sharing the risk of materials price inflation is having a positive impact; and if he will make a statement on the matter. [31074/22]

Michael McGrath (Cork South Central, Fianna Fail)
Link to this: Individually | In context | Oireachtas source

Significant progress has been made in the delivery of Project Ireland 2040 and the National Development Plan. Hosted at gov.ie/2040, the Investment Projects and Programmes Tracker and interactive map provide people with in-depth information on the progress of capital projects in their own area. The most recent version of the tracker was released on 18 May 2022. It is drawn from data provided by relevant Government Departments and agencies. It focuses mainly on projects and programmes with costs greater than €20 million.

Management and delivery of the projects and programmes are a matter for the Sponsoring Agency and Approving Authority in each case. The latest update of the tracker provides progress updates on over 270 projects and 140 programmes, including almost 100 projects in excess of €50m. Developed in collaboration with Ordnance Survey Ireland, MyProjectIreland is a citizen-focussed interactive map. By clicking on the map at gov.ie/2040, citizens can find updated information on what has been achieved and what is planned for their own local area. The May 2022 update expands the coverage of the map to incorporate over 1,100 projects.

The Government is committed to continue to detail the delivery of the National Development Plan at regular intervals into the future to allow for full transparency on the implementation of Project Ireland 2040. This will be achieved through regular updates of the capital tracker and map as well as the publication of annual reports and regional reports highlighting Project Ireland 2040 achievements and giving a detailed overview of the public investments which have been made throughout the country.

The interim measures to address the impact of Construction Material Price Inflation on Public Works Projects announced in November 2021 and introduced in January 2022 apply to projects whose tenders were submitted since 18 January 2022. They were introduced to provide greater certainty as to the extent of inflation that has to be borne so as to avoid over-provisioning for inflation and attract greater competition in public tenders.

These amendments 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, and

4. Provision for the public body to seek a reduction in the price where the price of a particular material reduces by more than 15% from the date the contract has been awarded has also been introduced.

While these changes had been expected to bring greater stability to contracting arrangements on projects whose tenders were received after 18 January 2022, there has been sustained feedback from Government Departments and their Agencies that successful delivery of priority projects included in the NDP is jeopardised by further inflationary pressures associated with the war in Ukraine. Departments have reported specific issues with fuel costs and supply chain disruption, including reduced competition for public works contracts and challenges relating to projects underway during 2021.

Through extensive engagement with industry and public sector stakeholders involved in the delivery of the National Development Plan (NDP) 2021-2030, it is clear that the delivery of many critical public capital projects is being put at risk due to the rapid increases in material and energy prices in recent times. For contractors who tendered for projects prior to the onset of these inflationary pressures, this issue is particularly acute.

In the interest of safeguarding public projects that are already under construction and to mitigate the risks of significant losses being sustained by contractors, on Tuesday 10 May I announced details of the “Inflation Co-operation Framework" for those parties engaged under a public works contract.

The Framework facilitates both parties to engage with one another for the purpose of addressing the impacts of this most recent onset of exceptional inflation and supply chain disruption and operates on an ex gratia basis. The Framework sets down the approaches and the parameters within which parties to a public works contract may calculate additional costs attributable to material and fuel price fluctuations using price indices published by the Central Statistics Office.

In recognition that neither party is responsible for the global events that have given rise to inflation, it is proposed that the additional inflation costs be apportioned between the parties, with, subject to budgetary constraints, the State bearing up to 70% of the additional inflationary related costs. The Framework applies to payments made from 1 January 2022.

The key provisions of the Inflation Co-operation Framework are:

- It operates from the point at which the parties agree to engage until the project is completed or the parties elect to withdraw by giving notice to the other.

- Given that further inflationary pressures have been building since the beginning of 2022, it provides for the back-payment of a proportion of inflation related costs (on materials and energy) to 1 January 2022 on those contracts which pre-date the introduction of the interim amendments (contracts with a revision date earlier than 7 January 2022).

- The inflation analysis is undertaken using relevant indices published by the Central Statistics Office.

- Going forward, for the duration of the framework, additional inflation costs (for materials and energy) are to be calculated in a similar manner.

- For more recent contracts (i.e. those that commenced under the amended forms of contract), the framework permits the recovery of costs arising from fluctuations in energy prices.

- And finally, for all contracts currently in progress, where it can be shown that a supply chain disruption that has arisen since 01 January 2022 that has led to a delay in completing the project, contractors will not be held liable to pay liquidated damages for the late delivery of the project.

The use of the framework is voluntary, but participation by the parties is strongly encouraged. It represents a pragmatic and proportionate response to the current challenges caused by inflation that are not within either party’s control.

Guidance, workbook templates and forms of agreement have been published by the Office of Government Procurement and are available on the Capital Works Management Framework website: constructionprocurement.gov.ie/. There is a new dedicated page ‘Details of Inflation/ Supply Chain Delay Co-operation Framework’, which can be accessed directly from the link in the top banner on the website.

The measures available under the Framework strike an important balance between the additional costs incurred by the State to support Contractors engaged on public projects and the State’s ability to deliver the NDP including housing delivery, whilst providing value for money for the taxpayer.

The OGP will be further amending the conditions of the public works contracts so that these measures are incorporated into the contractual framework on a permanent basis.

These amendments will ensure a clear apportionment of the risk associated with inflation to enable contractors to price that risk and ensure that we retain a reasonable degree of budgetary certainty without seeing a reduction in those participating in tenders and over-provision for inflation by those that submit tenders.