Wednesday, 22 November 2023
Department of Public Expenditure and Reform
72. To ask the Minister for Public Expenditure and Reform if he will provide an update on amendments to the capital works management framework in relation to public works contracts on foot of high inflation costs for construction materials and details of other supports available to contractors. [51413/23]
The Capital Works Management Framework (CWMF) represents the tools that a public body must use to procure and manage the external resources necessary to deliver a public works project that is to be delivered under the Exchequer-funded element of the National Development Plan. It consists of a suite of best practice guidance, standard contracts, generic template documents and procedures that cover all aspects of the delivery process of a public works project from inception to completion of the construction stage and the review of its delivery.
A review of the policies and practices deployed in the procurement of public works projects commenced in March 2019 and is ongoing. A high-level strategy has been developed by the Office of Government Procurement (OGP) with the Government Construction Contracts Committee (GCCC) that will guide the implementation and will be addressed primarily through the progressive refinement and enhancement of the CWMF.
The focus of the review is on improving the delivery of construction projects in terms of quality, timely delivery and cost outcomes. The review will deliver significant changes to the CWMF over the coming years. The review process involves extensive engagement, both with industry stakeholders, and with the public bodies charged with the delivery of public works projects on a broad range of issues such as:
- price variation
- risk management
- creating a better quality: price balance in the award of contracts
- adoption of Building Information Modelling (BIM) on public works projects
- liability, indemnity and insurance requirements
- performance evaluation
- encouraging collaborative working
In response to these events the OGP published guidance and developed measures to enable parties to public works contracts to work through the challenges that were created.
It has only been since the beginning of this year that the OGP has been able to refocus completely on the broader review programme resulting in significant amendments to the CWMF aimed at rebalancing the level of risk transferred under the public works contracts, while maintaining expenditure control for contracting authorities.
Since early in 2022 measures have been introduced to steadily reduce the level of inflation risk that contractors are expected to bear on public works projects in response to the increased level of price volatility which arose in the aftermath of the pandemic and further increased following the Russian invasion of Ukraine. Most recently, in July 2023, further amendments were made to the Public Works Contract to provide greater certainty to contractors in response to continuing inflationary pressures in the construction market.
The package included:
- amending the Price Variation Mechanism for recovery of inflationary cost to an approach solely based on indices published by the Central Statistics Office
- removing the fixed price period for materials, energy and fuel
- lowering the threshold for recovery of inflationary costs in key material categories
- introducing a simple price variation provision to cover materials in Public Works Contracts of lesser value
There is no longer a fixed price period for materials, fuel and energy but a fixed period of 2 years from the tender date still applies to labour costs.
The threshold above which the contractor can recover price increases due to inflation has been reduced to a range between 3 – 10% which the contracting authority selects.
Simpler mechanisms to determine adjustments to the contract sum for inflation have been provided in the forms of contract which apply to works with a value less than €5m.
Price Variation Workbooks and guidance were published in July 2023 to simplify and streamline the calculation of inflation increases for contracting authorities and contractors alike.
Whilst the level of inflation risk has been greatly reduced, it remains the case that contractors should carry some degree of the additional costs arising due to inflation because it encourages more efficient purchasing thereby addressing value for money concerns.
Professional Indemnity Insurance
Professional indemnity insurance (PII) protects the insured against claims for alleged negligence or breach of duty arising from an act, error or omission in the performance of professional services. It is typically carried by consultants and contractors engaged in design and advisory services on construction projects. PII provides cover on a ‘claims made’ basis and purchasers of PII are reliant on the policy in place at the time the claim is made to react. This may be many years removed from when the act or omission that is the subject of the claim occurred.
The market for PII has tightened considerably since 2019 as the level of capital available to this insurance category has reduced in response to a thematic review undertaken by Lloyds which identified PII as loss making. It has resulted substantial increases in the cost of premiums and a reduction in the level of cover that was generally available prior to 2019 meaning that fewer businesses were able to meet the standard PII requirements set down in the procurement templates published under the CWMF.
With respect to live contracts many consultants and contractors are now unable to obtain the level of cover that they are contractually required to carry over the duration of the contract.
The OGP engaged with key stakeholders on the issue of liability, indemnities and insurance and reviewed broader aspects of the required terms in the contracts used to engage design teams and contractors. Arising out of the engagement, amendments to CWMF documents and additional guidance were published in February 2022 to address PII challenges.
A further recommendation arising out of that engagement was to introduce caps on liability into the suite of CWMF contracts to provide certainty to all those engaged in the delivery of public works projects as to the extent of their liability in the event of a breach.
Guidance was published that sets levels of insurance that are available in the market place. These are set at levels appropriate to the scale of project being undertaken. Guidance on alternative products for contracting authorities who may wish to have greater certainty as to the level of cover that will be available on a project basis has also been published.
Procurement templates were revised to cater for the new arrangements. The final phase concluded with the introduction of liability caps into the forms of contracts used to engage consultants in Q1 2023 and those for works contractors in Q3 2023
Adoption of BIM on public works projects
A key theme of the review of the CWMF is the development of high quality information to enable better-informed decision making and reducing risk on construction projects. Building Information Modelling (BIM) represents a standards driven process to structure the information generated on a construction project. A high level implementation plan was outlined by Minister DPENDR and Minister of State for Public Procurement in July 2023 setting out dates for a phased adoption of BIM on public works projects.
The implementation strategy has factored in the varying levels of BIM skills that currently exist in the Irish Construction Sector. BIM will be phased into public works projects over a four-year period commencing in January 2024 with large-scale projects initially.
Government is providing support to industry to adopt BIM through the Build Digital project.
BIM offers industry the opportunity to rationalise its working methods, reduce waste and explore opportunities for off-site production. These all contribute to a leaner and safer project delivery making the industry a more attractive proposition from an investment and recruitment perspective.
The Government’s initiative is broader than merely the public capital programme but is aimed at the industry as a whole. The recent publication of new Standards for BIM by the International Organisation Standards (ISO) will develop a consistent approach to the delivery of BIM in Ireland and in a worldwide market.
The NSAI BIM Mirror Group has published an Irish Annex to ISO 19650-2:2018 for use in the Irish construction sector for both public and private sector projects.
Other work stream updates
- A series of workshops commenced Q3 2023 between stakeholders as part of the overall programme to reform the manner in which construction technical professional consultancy services are engaged. These workshops are focussed on better definition of the scope of service requirements. It is intended to complete the review by end 2023, with a series of recommendations implemented throughout 2024.
- Work is ongoing on introducing a fee adjustment mechanism for inflation in the forms of contract used to engage consultancy services.
- New template forms for the cost planning and cost control of building projects and civil engineering projects were published in August 2023 to incorporate the International Cost Management Standard (ICMS). ICMS is a global standard for benchmarking and reporting of construction project costs and covers both capital and whole life costing, while providing a way of presenting costs in a consistent format.