The OGP has today published an updated version of GN 1.5.2 Public Works Contracts: Price Variation Clauses, which deals with the contractual entitlements associated with the price variation clauses in the public works contracts forms PW-CF1 – PW-CF5.
The updated guidance reflects the amendments made to these forms of public works contracts on 7 January 2022 and is available here.
Further to the publication of details on 20 May 2022 of the Inflation/Supply Chain Delay Co-operation Framework Agreement for PW-CF1 – PW-CF5, the OGP published on Friday 3 June 2022 the suite of documents associated with the Short Public Works Contract (PW-CF6). These include the Letter of Agreement, guidance and associated workbooks to assist contracting authorities in calculating the Ex Gratia Payment for PW-CF6.
The OGP has also published a series of video tutorials to assist contracting authorities in the use of the template workbooks, a worked example and FAQs.
All of the above are available on 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 our website (https://constructionprocurement.gov.ie).
Further to the publication of details on Friday 20 May 2022 of the Inflation/Supply Chain Delay Co-operation Framework Agreement for PW-CF1 – PW-CF5, the OGP has today published the associated workbooks to assist contracting authorities in calculating the Ex Gratia Payment.
Please note that the workbooks should be opened in a web browser other than Internet Explorer.
Inflation Calculation Workbooks
W1 for use with Category 1 projects
W3 for use with Category 2 projects
W2 for use with Category 1 projects
W4 for use with Category 2 projects
Workbook(s) will publish shortly.
The Office of Government Procurement (OGP) has today published details of the Inflation/Supply Chain Delay Co-operation Framework Agreement (‘the Agreement). The publication follows the announcement by the Minister for Public Expenditure and Reform, Michael McGrath T.D. on the 10 May 2022 of new measures to address the risk posed by exceptional inflation and supply chain disruption on projects being delivered under the public works contract. These measures represent an appropriate and balanced set of provisions to address the impact of global events which are outside the control of either party to the contract, are uncertain in both their duration and impact and therefore place the successful completion of a project at risk.
The first tranche of documents deal with the major forms of contract PW-CF1 – PW-CF5 inclusive. Documents to implement the measures with respect to the Short Public Works Contract will follow next week.
The documents published today include:
PW-CF1 – PW-CF5 – Inflation/Supply Chain Delay Co-operation Framework Agreement
Guidance Note on Inflation/ Supply Chain Co-operation Framework Agreement
Workbooks to assist contracting authorities in calculating the ex gratia contribution will be published on Monday, 23 May 2022.
Once entered into, the Agreement operates without prejudice to each party’s rights under the Contract and is predicated on a cost burden share basis, whereby the Employer makes an ex gratia contribution of up to 70% of the inflation amount calculated and waives the application of liquidated damages arising from a delay in meeting the Date for Substantial Completion that is caused by supply chain delay.
The Minister for Public Expenditure and Reform, Michael McGrath TD, today, (Tuesday), announced details of further measures to address the impact that exceptional inflation in construction materials and energy is having on public works contracts.
As a consequence of the conditions experienced in 2021, amendments to address further price volatility were announced in November 2021. These apply to new contracts. The amendments did not address energy price volatility or delay caused by supply chain disruption.
Through extensive engagement with industry and public sector stakeholders involved in the delivery of the National Development Plan 2021-2030 NDP, it is clear that the delivery of many critical public capital projects was 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, Minister McGrath is introducing an “Inflation Co-operation Framework” for those parties engaged under a public works contract.
The Framework will facilitate 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 will operate on an ex gratia basis. The Framework will set down the approaches and the parameters within which parties to a public works contract 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 will be apportioned between the parties, with, subject to budgetary constraints, the State bearing up to 70% of the additional inflationary related costs. The Framework will apply to payments made from 1 January 2022.
Outlining the details, Minister McGrath said:
“While the changes introduced in January have brought greater stability to contracting arrangements, through ongoing engagement there has been sustained feedback from Government Departments and their Agencies that successful delivery of priority projects included in the NDP is jeopardised by construction inflation. More recently, Departments have reported specific issues with fuel costs and supply chain disruption, including reduced competition for public works contracts and challenges relating to completing projects underway during 2021. The changes implemented in January have provided a degree of mitigation on materials price increases (for contracts awarded with a revision date of 7th January 2022).
“I recognise the problems that these exceptional material cost increases, fuel costs, and supply chain disruption continue to have on public projects and those charged with their delivery at present. I am conscious of the difficulties being experienced by public bodies in progressing their projects and the ability to deliver the wider NDP whilst at the same time I need to maximise value for money for the taxpayer. It is vital that public works contracts remain a viable proposition for contractors with whom we partner in the delivery of the NDP.
“It is for these reasons, I am introducing further measures in addition to the ones put in place in January. I consider that these actions are necessary and proportionate in the context of the significant risk that global exceptional inflation poses to the delivery of much needed public facilities in the NDP. 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, whilst providing value for money for the taxpayer.”
Notes for Editors
The key provisions of the Inflation Co-operation Framework are:
-It will operate from the point at which the parties agree to engage until the project is completed.
-that further inflationary pressures have been building since the beginning of 2022, it will provide for the back-payment of a proportion of inflation related costs (on materials and energy) to 1 January 2022 on those contracts that are in progress since the beginning of 2022 (i.e. before the revised contracts were issued).
-Going forward, for the duration of the framework, additional inflation costs will be calculated in a similar manner.
-For more recent contracts (i.e. those that commenced under the amended forms of contract), the framework will permit 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 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 will be published by the Office of Government Procurement shortly.
There are two aspects to its application depending on the form of contract that applies –
I. retrospective analysis of cost increases with respect to payments made from 01 January 2022 and delays from the same date up to the point of entering the Inflation Co-operation Framework; and
II. ongoing engagement on mitigating cost increases and delays after entering the Inflation Co-operation Framework up to the completion of the project.
The inflation analysis will be undertaken using relevant indices published by the Central Statistics Office.
It is proposed that both parties will share the burden in recognition that neither party is responsible for the events that have already transpired and will continue to evolve. Where costs are identified it is proposed that parties will share these costs with the State bearing 70% of the additional costs.
Where unavoidable delays are attributable to disruption to supply chains, the Employer will waive liquidated damages for that period identified as arising from disruption to its supply chains.
Any back-payment of additional inflation costs will be paid on a phased basis, with 50% paid up-front, and the remainder apportioned over future payments.
Summary of the application of Inflation Co-operation Framework:
| Form of Contract | Recovery for Materials Price Inflation | Recovery for Energy/Fuel Price Inflation | Relief from Liquidated Damages for delay caused by Supply Chain Disruption** | |
| Dated prior to 7 January 2022 | Yes | Yes | Yes | |
| Dated 7 January 2022 | No (already provided) | Yes | Yes |
Once parties enter into the framework, it will operate until the project is completed or the parties elect to withdraw by giving notice to the other.
The OGP will amend the conditions of the public works contracts so that some of these measures are incorporated into the contractual framework on a permanent basis. (This is in a similar fashion to how the OGP amended the contracts to provide a Covid mandatory Closure clause, following the introduction of the Agreement for ex gratia costs for mandatory closures).
These amendments will ensure a clear apportionment of the risk associated with inflation to enable contractors to price that risk and ensure that Contracting Authorities retain a reasonable degree of budgetary certainty, without seeing a reduction in those participating in tenders and an over-provision for inflation by those that submit tenders.
Contractors should continue to carry some degree of the additional costs arising due to inflation in recognition of the original terms upon which they tendered and it encourages more efficient purchasing thereby addressing value for money concerns.
It has been decided that it is appropriate for the State to bear the majority of any additional costs identified on the basis of the limited capacity of contractors to bear these additional costs which are exceptional in terms of the increase and the uncertainty with respect to their duration. As the State is the ultimate owner and beneficiary of the asset that is under construction, it is imperative that quality materials continue to be used to ensure the durability of completed asset.
The interim amendments published on 7 January 2022 only apply to projects whose tenders were submitted on or after 18 January 2022. Amendments were made to the price variation clause to lower the thresholds above which the State would bear the cost of inflation to address the potential for significant spikes in materials. At that point available forecasts, trends in pricing indices and feedback from public bodies indicated that the inflation that had arisen since 2021 was transitory and that supply chain disruptions were settling down.
In addition, the fixed price period was reduced to 24 months and mutual cost recovery is permitted within the fixed price period for material price changes in excess of 15%. The amendments also provided for the indexation of the tender sum to allow for fluctuations in material prices between the point at which the tender was submitted to the award of the contract.
Sustained price increases across a range of construction sector inputs, coupled with supply chain volatility, have led to increased market uncertainty and pose a challenge for the successful delivery of the National Development Plan.
Significant movements in timber and steel prices were noted during 2020, they accelerated further in 2021. These movements have broadened out since January 2021 to include a range of materials commonly used on building projects including plastics, insulation and electrical and plumbing fittings. The breadth of price increases is in excess of those typically experienced over the past 10 years.
The ‘All Materials’ category of the Detailed Wholesale Price Indices for Building and Construction Materials saw a 16.9% increase in the 12 months to March 2022. The average increase in the same category over the previous 3 years was 1.4%, the highest in 2021 was 2.3% with the lowest in 2020 being 0.2%. In some of the sub-categories the increase recorded in the March 2022 index over the past 12 months is more severe, ‘other structural steel’ for example shows a 64.1% increase and rough timber 46.3%.
Steel and timber products in particular saw substantial, sustained increases since early in 2021 and, to a lesser extent, materials such as insulation and plastics. These increases arose suddenly with no warning but had levelled off from September 2021 in line with inflationary forecasts from Q2 2021 which predicted that inflation would be temporary.
Energy prices showed marked increases in the latter half of 2021 and since January 2022 have increased further. This has a direct impact on costs in the construction sector, particularly on those projects with a significant complement of heavy machinery. Heightened energy costs also have an indirect impact through the increased cost of manufacturing and transporting materials.
A new guidance note, GN 2.3.4 Tender Price Indexation – Calculation, Notification and Application has been published today which provides detailed information to contracting authorities on the calculation, notification and application of the tender price indexation which has been introduced into the template forms for use with the public works contract forms PW-CF1 – PW-CF6 inclusive and which were published on 7 January 2022.
Further to the news item of 9 February 2022, the OGP today has published a model form of letter that may be used by Contractors/Specialists in relation to temporary Professional Indemnity Insurance arrangements. Where, as a result of the current insurance market conditions, during the term of a contract or a collateral warranty, a Contractor/Specialist cannot provide professional indemnity insurance on an each and every claim basis at the required level, the letter sets out the conditions that will permit the Employer to accept temporary alternative insurance arrangements, and which are subject to review on an annual basis. MF 1.29 Letter re Temporary PII Arrangements (in Pillar 1, Public Works Contracts) is provided for Contractors/Specialists.
The Office of Government Procurement (OGP) has today published Circular 05/2022: Construction Procurement Reform – Revised Guidelines for Professional Indemnity Insurance Levels in Public Works Projects and amendments to the Capital Works Management Framework (CWMF) to address risks caused to the procurement and delivery of capital works projects by on-going capacity constraints in the professional insurance indemnity (PII) market. This first tranche of amendments relates primarily to the procurement of Consultants.
The amendments, summarised below, also incorporate substantial changes to the suitability assessment questionnaires for consultants (QC1 & QC2) and a range of associated documents. These changes are aimed at reducing the extent of documentation to be provided by applicants in a procurement process, to better facilitate digital submission and to clarify the process for applicants who are reliant on the capacity of others to meet pre-qualification criteria.
Revised PII Requirements
– In Pillar 4 (Guidance Notes), a new Guidance Note GN 1.1.2 has been published that summarises the challenges presented by the current constraints in the PII market. It addresses the impact that the manner in which consultants and contractors are engaged can have on liability, summarises the options available to a contracting authority with respect to insuring design risk and provides guidance on the measures that can be taken where PII can no longer be obtained to meet contractual requirements. Revised guidelines for contracting authorities to select the appropriate levels of PII to apply in competitions for consultants and contractors are also provided.
– In Pillar 2 (Conditions of Engagement), the requirements for the provision of PII on an “each and every claim” only basis for Consultants have been amended. If, because of the current market conditions, applicants in a competition are unable to provide PII on an “each and every claim” basis, cover on an “annual aggregate” basis will now be acceptable. This is on condition that the applicant undertakes a review of the availability of PII on an “each and every” basis with the Client upon the annual renewal of its policy. Where such a review concludes that PII is available on an “each and every” basis within the terms set out in the Form of Tender, the Consultant will be required to provide the PII on an “each and every” basis.
Amendments have been made to the forms of Tender and Schedule (FTS-9 and FTS-10), Model Forms 2.1 (PII Certificate) and 2.3 (Collateral Warranty) to implement this provision.
– In Pillar 3, the minimum standards for the PII criterion in the Suitability Assessment Questionnaires for Service Providers (i.e. QC1 & QC2) relating to the terms, including the level of excess of the required insurance policy have been amended. New requirements are introduced in relation to the entity providing insurances and the form of evidence required to demonstrate an Applicant either does or can meet the requirements for PII, Public Indemnity and Employers Liability Insurances.
– In addition, where, as a result of the current insurance market conditions, during the term of a contract or a collateral warranty, a Consultant cannot provide professional indemnity insurance on an each and every claim basis at the level stated in the contract/collateral warranty, a new model form letter has been introduced. The letter sets out the conditions that the Consultant must meet that will permit the Client to accept temporary alternative insurance arrangements, which are subject to review on an annual basis. MF 2.11 Letter re Temporary PII Arrangements (in Pillar 2, Conditions of Engagement) is provided for Consultants.
General Revisions
In Pillar 2, (Conditions of Engagement) and Pillar 3 (Suitability Assessment), general updating of the Instructions to Tenderer (“ITT”) documents, Model Forms and SAQ documents for Consultants including but limited to:
– In order to reduce the extent of documents that make up the pre-qualification submissions under both an open or restricted procedure the layout of QC1 and QC2 has been re-configured such that they now comprises two parts, which are now to be completed separately by the Contracting Authority and Applicants. Part 2, which forms the basis of an applicant’s response has been standardised to respond to either QC1 or QC2. Evidence, if required to be submitted by the Contracting Authority, must still accompany Part 2 if the submission is to be valid.
– The introduction, in Pillar 2, of new model forms of contractual commitments for entities relied upon for the purpose of pre-qualification. Where, in order to meet the requirements of a qualification criterion in the SAQ, a successful Tenderer relies upon the resources of another entity (including the provider of a specialist skill who is not the Tenderer itself), the entity relied upon is required to enter into a contractual commitment to make the resources available.
Where an entity has been relied upon for financial and economic criteria, the entity is required to provide a guarantee in the form of MF 2.9 Reliance Guarantee, and where an entity has been relied upon for any of the technical competency criteria, the entity will be required to provide a warranty in the form of either MF 2.10 Reliance Warranty or a Collateral Warranty in the form of MF 2.3 (having regard to the resources relied upon) for the benefit of the Client. (Specialist Skill Providers are still required to provide a Collateral Warranty, where it is required in the Particulars.)
At SAQ stage, entities relied upon by an Applicant, are required to provide confirmation that they will provide the appropriate contractual commitment either by completing an eESPD (where an eEPSD is required in the competition); or providing an undertaking in the form of a new letter provided as Appendix D in Pillar 3.
– General updating of the documents where appropriate including strengthening of the provisions in the documents, including electronic submission and use of an eESPD to provide a self-declaration in relation to Regulation 57 Exclusion Grounds of SI 284/2016 for above-threshold competitions. Where a competition is sub-threshold, and a Contracting Authority elects to apply the requirements of Regulation 57 (Exclusion Grounds), they may either specify that Applicants must complete a new Appendix A (Applicant’s Self-Declaration in relation to Article 57), or an eESPD, to provide a self-declaration. Contracting Authorities are encouraged to use electronic submission (and an eESPD, where appropriate) for sub-threshold competitions.
– In Pillar 3, former Appendices A (Declaration Under Oath re Article 57) and A1 (Confirmation that the Oath is still valid) are updated for the requirements of Regulation 57 of SI 284/2016 and are now contained in Pillar 2 as Model Forms MF 2.7 and MF 2.8 respectively.
– The ITT’s no longer require that the Tender must be executed in the same way as the contract.
The Office of Government Procurement has today published a suite of interim amendments to the Capital Works Management Framework (CWMF) to address the risk of price inflation to construction materials in public works contracts. The amendments, which are summarised below, are those interim amendments (‘the amendments’) that are described in Section 3 of the Guidance on public works tenders with respect to construction material price inflation (“the Guidance”), as published by the Office of Government Procurement on 24 November 2021 and should be read in conjunction with the Guidance.
The amendments comprise the introduction of the following measures:
a) Limited indexation to apply to the successful Tenderer’s tender (applies to PW-CF1 to PW-CF6 inclusive):
New measures are introduced to mitigate the risk of construction material inflation that occurs within a specified period prior to the award of the standard forms of public works contracts PW-CF1 to PW-CF6 (inclusive). Formulae have been introduced to the Instructions to Tenderers for these contracts to determine the extent of an increase (if any) that will apply where the price of construction materials, as measured by relative movements in a specified index (See Note 1), has increased above a specified threshold.
There are two distinct approaches where the formulae determine the adjustment:
– In the case of PW-CF1 to PW-CF5 (inclusive), the formula determines an ‘Applicable Factor (Contractor)’ that will adjust each interim payment to the main contractor, and where there are named Specialists (Novated or Reserved) in the contract, a separate ‘Applicable Factor (Specialist)’ will apply to their payments.
– Where PW-CF6 is concerned, the formula determines the adjustment to apply to the successful Tenderer’s tendered price to arrive at the final tendered price for the contract.
In both approaches described above, an adjustment will not result in a reduction in the successful Tenderer’s tender.
In the first instance, the Applicable Factor or the adjustment to the tendered Price (as appropriate), will be notified by the contracting authority in the Letter to the Successful Tenderer. Where the specified index is up-dated within the period prior to the issue of the Letter of Acceptance or Tender Accepted (as appropriate), the relevant formula in the Instructions will be re-applied, and a new notification issued to the successful Tenderer of the revised figures to apply for the contract.
The relevant Tender and Schedules for these public works contracts have been amended to allow for the inclusion of the values for the Applicable Factor (PW-CF1 to PW-CF5), and the final tendered Price (PW-CF6) in the relevant contract.
b) Amendment to PV1 and PV2 (applies to PW-CF1 to PW-CF5 inclusive only)
In PW-CF1 to PW-CF5, the price variation clauses PV1 and PV2 (“PV1 and PV2”), have been amended with respect to the fixed price period as follows:
i. Reduction in the duration of the fixed price period
The duration of the fixed price period for both PV1 and PV2 is reduced to 24 months, which now commences on the Tender Inflation Indexation Date (See Note 2).
ii. Adjustment to the Contract Sum for materials price inflation or deflation during the fixed price period
Under amendments introduced to both PV1 and PV2, within the amended fixed price period of 24 months, and subject to meeting the particular requirements of PV1 and PV2 (as applicable), as summarised below, the contract sum shall be
-increased where the price of a material has increased by more than 15% of the price of the material on the Tender Inflation Indexation Date; and
-decreased where the price of a material has decreased by more than 15% of the price of the material on the Tender Inflation Indexation Date.
Guidance
With respect to those measures outlined in a) above, worked examples on the application of the formulae have been provided in a new appendix to the relevant Instructions to Tenderers and guidance on how to access the specified index has been published here.
With respect to those measures outlined in b) above, Guidance Note 1.5.2 Price Variation is currently being updated to assist contracting authorities in implementing those new measures.
Implementation
A summary of the amendments made to documents published under the Capital Works Management Framework may be found here.
The amended documents take effect from the date of publication and contracting authorities should therefore make appropriate arrangements that the amended documents are used.
Subject always to the particular circumstances of a tender competition, contracting authorities currently conducting a live tender process should note that:
-where the standard form of Instructions to Tenderers for PW-CF 1 to PW-CF 5 are in use, that the amended forms of contracts will apply to those tenders that are due to be received from the 18th January 2022 onwards (See Note 3). Therefore, it is recommended that contracting authorities make appropriate arrangements to provide the relevant amended documents for such competitions.
-where the competition is for PW-CF6, that while the standard form of contract for PW-CF6 is not affected by the amendments, the Instructions to Tenderer and the Tender and Schedule are amended. Therefore it is recommended that those contracting authorities electing to include the amendments relevant to PW-CF6, make appropriate arrangements to provide the relevant amended documents for such competitions.
Contracting Authorities are advised to consider the potential impact that the amendments may have on the particular circumstances of a project and seek expert advice if necessary.
Notes: