Government to give construction companies top-ups to off-set inflation

Mr McGrath said soaring costs in fuel, energy and building products have not stabilised, leaving construction firms that have entered into fixed-price contracts for public works extremely exposed

The Government has agreed to pay contractors working on public projects tens of millions of euro extra to allow for soaring inflation.

Up to €160m extra could be paid out by the end of the year to construction companies involved in new road, civil infrastructure, and public buildings under a new "cooperation framework".

Minister for Public Expenditure Michael McGrath said the package of measures is "necessary" and "proportionate" to ensuring public projects remain viable and are delivered on time.

Mr McGrath said soaring costs in fuel, energy and building products have not stabilised, leaving construction firms that have entered into fixed-price contracts for public works extremely exposed.

"The framework will set down the approaches and the parameters within which the parties can operate to determine the additional costs attributable to inflation, and to share the financial burden in a proportionate manner.

"It will also permit an element of retrospective inflation cost recovery on payments already made on projects from the first of January this year, in recognition that inflationary pressures were further building from this point in anticipation of Russia's actions," he said.

The Minister added that the extra funding would "strike an important balance" between the additional costs incurred by the State and the State's ability to deliver the national development plan while also maximizing value for money for the taxpayer.

"It is anticipated that the additional payments arising out of the first three months of the current year are between €30m and €40m on the basis of expenditure incurred to date."

However, Mr McGrath said no time limit has yet been put on the scheme, given the uncertainty around inflation in the coming months. After the measures were signed off by Cabinet, Mr McGrath said construction-related supply chains have been affected by inflation and the cost of producing and transporting construction materials is set to rise further. 

"In addition, the availability and delivery time for construction materials has also been impacted leading to some delay, which is leading to real difficulties on certain projects, particularly those with a longer delivery timeframe, which were tendered in advance of any indication of these exceptional inflationary pressures."