Thursday, 19 January 2023
Department of Public Expenditure and Reform
213. To ask the Minister for Public Expenditure and Reform the measures he and his Department are taking to decrease the cost of building materials, which is having a very negative impact on the construction industry and consumer; and if he will make a statement on the matter. [56965/22]
As Minister for Public Expenditure, NDP Delivery and Reform, I have responsibility for public procurement policy, including the work of the Office of Government Procurement within my Department.
There are two main sources for the significant and sustained increases in the price of a broad range of commonly used materials in the construction sector since Q2 of 2021. The first arises from the pandemic and in particular with materials shortages due to a sudden surge in demand as economies reopened across the globe. Essential supplies were prioritised throughout the pandemic, whereas the manufacture of materials for non-essential areas was impacted disproportionately leading to shortages in certain sectors including construction.
Whilst global supply chains grappled with this challenge, the Russian invasion of Ukraine resulted in further disruption to the supply of raw materials and, crucially, increases in energy prices which impacts both the manufacturing and transportation of materials, and affects all sectors, including construction.
The elevated cost of building materials therefore is linked to global events that are impacting on all economies. There is evidence to suggest that the rate of increase in material prices has moderated but they remain elevated and energy prices remain extremely volatile. The Building and Construction index (i.e. Materials and Wages) increased by 0.4% in November 2022 and by 10.0% in the 12 months to November 2022. The Rough Timber (including plain sawn) category of the Wholesale Price Index has seen prices reduce in recent months and the index as of November 2022 is 14.6% lower than this time last year.
My department’s response to this issue has been twofold: firstly, to introduce measures to safeguard projects being delivered under the National Development Plan; and, secondly to invest in and promote measures that will drive efficiencies in the construction of buildings.
The volatility in the price of materials and energy is giving rise to significant challenges in the tendering process. Contractors have been unable to obtain fixed prices from materials suppliers which in turn means that contractors have to build in significant contingencies to deal with the risk of further inflation. For projects that were tendered prior to the onset of price increases, contractors were unable to absorb the additional costs, leaving them exposed.
In January 2022, the Office of Government Procurement introduced amendments to the standard public works contracts to enable contractors to recover price increases in excess of stated thresholds to bring greater certainty in the tendering process. In response to the further price escalation in materials and the exceptional increases in energy prices evident since the Russian invasion, additional measures were introduced in May to address the risk arising under live contracts.
In order to improve delivery efficiency, the Construction Sector Group (CSG), which is chaired by the Secretary General of my Department, has a number of initiatives currently underway to increase productivity in the sector. These include the recently established Construction Technology Centre, known as Construct Innovate, to accelerate research and innovation within the sector; the Build Digital Project, which is funded by my department, to support the sector in its transition to digital; the adoption of Building Information Modelling; and an analysis of the cost of residential construction.
Furthermore, work is underway in both the Department of Enterprise, Trade and Employment and in the Department of Further and Higher Education, Research, Innovation and Science on Modern Methods of Construction which also aims to improve productivity in construction.