CIF: New contracts to push up price of construction

Construction Industry Federation (CIF) president Hank Fogarty today warned that new public sector construction contracts will push up the price of building public infrastructure in Ireland, damaging small and medium contracting companies.

Fogarty further criticised Government for “ignoring the industry view on the changes” and for “abandoning the principle of partnership that is the hallmark of successful construction contracts throughout the rest of the world”.

Fogarty was speaking at a CIF International Conference titled ‘New Directions in Construction Procurement: International Best Practice’ held in the Davenport Hotel today.

“In Ireland, a country in a unique period of infrastructure catch-up and one whose long-term sustainable economic development depends on eradicating existing and emerging infrastructure bottlenecks, it is critical that we get the contracting relationship right,” he said.

“This is particularly so as we embark on a new and ambitious National Development Plan that will run to 2013. However, any independent examination of the new contracts will show that Government has got it wrong.

“The principles of risk recognition, risk sharing and risk management and more importantly the principle of partnership has been abandoned by Government in favour of the principle risk transfer at any cost.

“The experience elsewhere is that this type of contract simply leads to confrontation and conflict - where it has been tried, Governments have reverted to alternative forms of contracts.

“This is because imbalanced risk transfer necessitates Governments paying a premium for projects with greater price certainty being achieved at the expense of value for money.

“In Northern Ireland, the policy is to use ECC forms of contract which are founded on the principle of partnering, target cost and open book accounting because they, rightly, believe they provide the most efficient and cost effective delivery of public infrastructure.

“The adoption of an extreme risk transfer model also means that many small and medium contracting companies, which make up the bulk of the Irish industry, will no longer compete for Government contracts, even smaller local projects.

“A feature of the Irish industry has been the capacity of companies with a relatively small capital base to compete for and successfully complete projects, which has ensured strong competition in the contracting market - this is attested to by the fact that construction inflation has over the last three years been running at less than 4% and below the inflation rate for the economy as a whole.

“Under the new contracts, the level of competition will be severely curtailed.

“The industry has asked Government on a number of occasions to look at the alternatives. Unfortunately, this has not been done and the negative consequences will become apparent over the coming years, perhaps when it’s too late to reverse them”.