24 November 2021 – Minister McGrath announces details of interim measures to address the impact of Construction Material Price Inflation on Public Works Projects

The Minister for Public Expenditure and Reform, Michael McGrath TD, today, Wednesday, November 24th, announced details of interim measures to address the impact that the recent price increases in construction materials is having on public works tenders.

Steel and timber products in particular have seen substantial, sustained increases since the middle of last year, and they have been joined in this regard by materials such as insulation and plastics since early in 2021. In addition to this, certain materials are in short supply or have longer delivery times.

Supply chain disruption caused by the pandemic, and, to a lesser extent Brexit, is the root cause of these price increases which are sustained by increased demand driven by the various economic stimulus plans announced globally.

It is not evident yet as to the duration of the prevailing market conditions, the potential for further price increases, or whether prices might return to prior levels.

Since the risk of inflation largely passes to contractors under the public works contracts, contractors are reluctant to commit to a price that may be submitted many months before the works commence with no opportunity to seek additional payment to cover price increases over the construction phase.

Outlining the details, Minister McGrath said:

“I recognise the problems that these exceptional material cost increases are having on public projects at present. I have been working with my officials considering the optimum means to bring greater certainty with respect to future tenders in light of these cost increases.

“I am conscious of the difficulties being experienced by public bodies in progressing their projects due to sustained construction material price increases whilst at the same time I need to safeguard the interests of the taxpayer.

“In response to these challenges and to mitigate potential impacts upon the National Development Plan, I am announcing interim measures to address two aspects of immediate and short-term concern for ‘live’ and ‘future’ public works tenders.

“These measure are intended to engender confidence in the tender, award and operation of public work contracts so that the taxpayer is not paying a premium for price increases that may never materialise whilst accepting the potential for additional payments to contractors in the event that further significant price rises occur”.

The Office of Government Procurement (OGP) is issuing today procurement guidance to assist public bodies in managing the challenges they face concluding live tenders in light of the significant price increases that have arisen since the tenders were submitted.

This guidance is aimed at contracting authorities who have invited or received tenders and covers the following situations:

1)     Where tenders have been received but a Contract is yet to be awarded,

2)     Those live tenders where the deadline for receipt of tenders has not passed; and

3)     Tenders that are yet to commence.

With reference to future tenders, interim amendments to the provisions in the public works contracts will be introduced in December which will, within certain parameters, reduce the level of risk of extraordinary price inflation that contractors will have to bear.

These will:

(a) address the period between tender submission and award through limited indexation of the tender price,

and

(b) reduce the fixed price period to 24 months and permit mutual cost recovery within the fixed price period for material price changes in excess of 15%.

Further amendments on price inflation will be developed for consultation with stakeholders in 2022, which will form part of the ongoing Capital Works Management Framework review and the commitments in Housing for All .

The procurement guidance note, revised forms of public works contracts and instructions to tenderers will be available shortly on the Capital Works Management Framework website.

ENDS

Notes

Government policy (through Circular 33/06) requires all public works projects that are delivered under the Exchequer-funded element of the National Development Plan to be procured in accordance with the provisions laid down in the Capital Works Management Framework (CWMF).

The CWMF provides an integrated set of standard contractual provisions, guidance material, technical templates and procedures, which cover all aspects of the delivery process of a public works project from inception to final project delivery and review to assist contracting authorities in meeting their ongoing procurement requirements.

Public works contracts are fixed price contracts, which are to be comprehensively defined prior to tender. The contractor prices for the risk of increases in the cost of labour, materials and certain changes in law for the periods specified.

The provisions for inflation under a public works contract with a value in excess of €1m are as follows:

The price remains fixed for a defined period, typically 30 months from the date of the award of the contract.

After the expiry of the fixed price period, the contractor may recover the excess percentage above a 10% threshold on price increases that arise at the end of the fixed price period.

Conversely, where the price of materials has decreased the Employer obtains the benefit of a reduction in the contract sum to the value of the percentage in excess of 10% for materials purchased after the fixed price period has expired.

Where material price increases occur within the fixed-price period, there is a mechanism for adjusting the contract sum for hyperinflation in material costs. This would only arise where the price of a given material has increased by more than 50%. There are two tests to determine the application of the entitlement; the material must have increased by more than 50% of a) its price at the time of the tender and b) the price of that material in the first business day of the month in which the material is purchased.

For projects with a value less than €1m there is no adjustment for price inflation because they are used on straightforward projects of short duration.

With the exception of occasional spikes due primarily to movements in key commodities, the price of construction materials has been reasonably predictable for almost a generation.

Where price increases (or decreases) are consistent, they can be factored into the price. What differentiates the current situation is the uncertainty with respect to the intensity, duration and scale of the price movements.

Not all construction materials are displaying the same rate of increase, typically building projects are impacted to a greater extent than civil engineering projects due to the range of materials that are currently showing significant increases.

8 October 2021 – Dispute Avoidance and Management in Public Works Contracts Masterclass- Tuesday 19th October 2021

The Commercial Skills Academy of the OGP will host a 2-hour Masterclass on the topic of Dispute Avoidance and Management in Public Works Contracts on Tuesday, 19th October 2021 at 9.30 a.m.

The purpose of this event is to provide attendees with an understanding of what opportunities are contained within the public works form of contract to avoid disputes including how the role of the Standing Conciliator can assist in this regard. The roundtable discussion will also focus on how to best prepare for and manage disputes. Discussion will also take place on reaching agreement amongst the parties.

A flier detailing the line-up and content is available here

Please note that this event is only for the public service

To register please contact csacademy@ogp.gov.ie

29 July 2021 – Publication of Covid-19 Clause in Public Works Contracts

The Office of Government Procurement (OGP) has today published updated versions of the CWMF template public works contracts.

These contract forms now include a new ‘Covid-19 Mandatory Closure’ clause which provides Employers and Contractors with a clear process to extend time and, where appropriate, share certain costs in the event of a mandatory closure of a site due to Covid-19. These contract amendments are designed to provide certainty to both parties in the event of such a closure and enable the more accurate pricing of risk in public works tenders.

In addition to updated public works contracts, the OGP has also today published amended Forms of Tender and Schedules (FTS1-5) and guidance notes, one new Model Form (MF 1.31, Site Closure Costs Supplement), and one new guidance note (GN 1.5.4, Covid-19 and the Public Works Contracts) in order to fully implement the Covid-19 clause. The new guidance note, GN 1.5.4, may be referred to for a full introduction and guide to the operation of the clause.

The full list of amendments made is available here.

9 April 2021 – Publication of Supplementary Note 4 – January 2021 Public Health Measures

On 30 March 2021, the Government announced the phased easing of the public health measures first introduced in January 2021. Amongst other measures, these regulations require the continued closure of all non-essential construction sites until 4 May 2021. Certain categories of construction project will, however, be permitted to re-start works from 12 April 2021.

In consideration of the financial burden this further period of site closure will place on Contractors, the OGP has today published a note recommending that Employers consider extending the ex gratia relief previously proposed by the OGP until 4 May 2021 (or, if earlier, the permitted date of site re-opening).

This note is the fourth in a sequence of notes supplementing guidance first published by the OGP on 12 February 2021 and provides guidance for all contracts entered into either before, on, or after 14 April 2020.

Further information on Supplementary Note 4 – January 2021 Public Health Measures is available here.

11 March 2021 – OGP Publishes Supplementary Note 3 – ex gratia payment extension

On 5 March 2021, the government extended the public health measures first introduced in January 2021 until 5 April 2021. Amongst other measures, these regulations require the closure of all non-essential construction sites.

In consideration of the continuing financial burden this additional period of site closure will place on Contractors, the OGP has today published a note recommending that Employers consider extending the ex gratia payments previously proposed by the OGP until 5 April 2021.

This note is the third in a sequence of notes supplementing guidance first published by the OGP on 12 February 2021 and provides guidance for all contracts entered into either before, on, or after 14 April 2020.

Further information on the Supplementary Note 3 – January Public Health Measures is available here.

 

5 March 2021 – Publication of model forms of the Covid-19 Site Closure Supplemental Agreement for use with standards forms of PW-CF6 and PW-CF7 

Today, the OGP has published model forms of the Covid-19 Site Closure Supplemental Agreement, which are compatible for use with standards forms of PW-CF6 and PW-CF7 respectively. These should be used in conjunction with the supplementary guidance notes (as appropriate to the date that PW-CF6 or PW-CF7 contract was made) and the Covid Costs Notices published by the OGP on 26 February 2021.

Further information is available here.

26 February 2021 – Publication of supplementary guidance documents and model forms of Supplemental Agreements in order to give effect to the proposed ex gratia scheme announced on 12 February 2021

On 12 February 2021, the OGP published guidance to Contracting Authorities party to the standard forms of Public Works Contract regarding the public health measures introduced on 8 January 2021. Amongst other measures, this guidance recommended these Contracting Authorities consider a scheme of ex gratia payments be made to Contractors affected by site closures under the public health measures. Today, the OGP has published a series of supplementary guidance documents and model forms of Supplemental Agreements in order to give effect to this proposed ex gratia scheme.

Further information is available here.

12 February 2021  – OGP publishes note in relation to public health measures announced on 6 January 2021

On 6 January 2021, the Government announced public health measures aimed at limiting the spread of the Covid-19 pandemic (the “closure order”).  Inter alia, the public health measures required non-essential construction sites to close between 6pm on 8 January 2021 and 31 January 2021.  On 26 January 2021, the closure order was extended to apply  until 5 March 2021.  The OGP has today published a note that:

  1. Outlines the provision for delay and cost in the standard forms of public works contracts (“Public Works Contracts”) arising from the current circumstances for those sites impacted by the closure order (“affected pwc construction sites”);
  2. Sets out recommendations for ex gratia payments by Employers to Contractors in relation to affected pwc construction sites where the works were procured using Public Works Contracts* ; and
  3. Provides advance notice of a forthcoming amendment to the  Public Works Contracts for future contracts.

*Supplementary guidance and other material will be published separately.

As in its Covid related 2020 publications, the Office of Government Procurement (OGP) continues to encourage Employers and Contractors to take a collaborative approach to dealing with the impacts of the closure order on public works contracts.

Further information is available here.

11 December 2020 – Participants required for Office of Government Procurement’s Review of the operation of the roles of Standing Conciliator and the Project Board

The Office of Government Procurement (OGP) is undertaking a Review of the dispute resolution procedures in the public works contracts (the Review). As part of the Review we are seeking expressions of interest to participate in the Review of the operation of the roles of Standing Conciliator and the Project Board. If you have past and/or current experience and working knowledge of the roles of the Standing Conciliator and the Project Board, the OGP would like to hear from you.

Initially, we are seeking expressions of interest to participate in a survey and interview as part of the primary research stage (Stage 1) of the Review.  The survey and interviews will be carried out by Indecon International Consultants on behalf of the OGP and all contributions will remain anonymous.  Those submitting an expression of interest should ideally be or have been*:

– Appointed to the role of Standing Conciliator
– An Employer/Employer’s Personnel
– A Contractor/Contractor’s Personnel
– An Employer’s Representative (ER)
– A Contractor’s Representative/Contract Manager/Project Manager
– A Design Team Consultant
– Appointee to a Project Board

*On projects where the works stage has been ongoing for at least 12 months

If you are interested in participating in this survey and interview and possess the relevant experience as outlined above, please notify us of your expression of interest via the link here.

The closing date for expressions of interest is Friday 15 January 2021.

Background of the Review

The Standing Conciliator role and the Project Board were introduced in 2016 in response to the OGP’s ‘Report on the Performance Review of the Public Works Contract’ in 2014.  The report sets out a series of interim recommendations for the procurement of public works projects under the Capital Works Management Framework (CWMF) including:

– The introduction of an informal dispute resolution process at senior management level within the respective organisations that are parties to the Contract – the Project Board – for the purpose of reviewing disputes with the intent of reaching a resolution.

– The introduction of a Standing Conciliator for pre-dispute management purposes, in order to encourage proper engagement between the Parties and assist in the avoidance of disputes.

More detailed information is available in the OGP’s CWMF Guidance Note 3.1.1 on dispute resolution.

Engagement of Consultants

Indecon International Consultants have been appointed by the OGP to undertake an investigation of the current operation of the Project Board and the Standing Conciliator role.  The investigation will involve gathering empirical data from industry practitioners involved in public works projects where Standing Conciliators and Project Boards have been appointed.  This research constitutes Stage 1 of the Review.  The data gathered will be collated and analysed by Indecon Consultants who will then, at the end of Stage 1, prepare a report for the OGP setting out conclusions and recommendations.  It is the intention of the OGP to publish a summary of all findings and recommendations along with a position paper on dispute resolution under the public works contracts during Stage 2 of the Review.

Methodology

– Stage 1

The research is programmed to take place over a 12-month period commencing in December 2020.

Phase 1 – Structuring:
During this phase a database of possible survey and interview participants will be compiled in order to aid in the design of the sampling methodology.  It should be noted that not all who express an interest in participating in the research may be contacted.

Phase 2 – Gathering the Empirical Data:
During this phase an international practice review will take place.  The survey design will be finalised prior to the initiation of research fieldwork, concluding with interviews with participants selected from the expressions of interest.  Phases 1 and 2 are scheduled to be completed within the first 6 months of the programme.

Phase 3 – Analysing Empirical Data:
The empirical data collected from the research, surveys and interviews will be analysed and reported to the OGP during Phase 3.

Phase 4 – Reporting:
In this last phase of Stage 1, all detailed conclusions and recommendations will be formulated and reviewed prior to Indecon Consultants issuing their final report to the OGP.  This will conclude the involvement of Indecon Consultants in the Review.

– Stage 2

Stage 2 will be carried out by the OGP in conjunction with the Government Construction Contracts Committee (GCCC). It will involve the evaluation of the data and recommendations reported from Stage 1 and conducting further analysis, if necessary, before publishing a position paper and thereafter considering policy amendments to the dispute resolution provisions in the suite of public works contracts.

Please be advised that participants can withdraw from the Review at any point.

If you have any queries please contact publicworkscontractsreview@per.gov.ie.

10 December 2020 – Publication of OGP Brexit Information Note December 2020

Please note that the fourth in a series of information notes prepared by the OGP’s Policy Unit aimed to provide guidance for public bodies charged with dealing with public procurement and the management of public contracts in the context of changes which will arise due to Brexit has been published.

This update note is intended to provide public bodies with advice on actions they may wish to take in the context of Brexit and its implications for public procurement in Ireland.

The OGP Brexit Information Note December 2020 is available to download here.