Improving delivery of infrastructure projects and removing “unnecessary administrative barriers” is a key goal of the Irish Government. These views were expressed by Pascal Donohue, the Minister for Public Expenditure and Reform, to major international contractors at an industry briefing in May 2023.
Infrastructure Guidelines
This sentiment builds on the recent Public Spending Code (PSC) update delivered in April 2023. The PSC will soon be replaced by new Infrastructure Guidelines (Guidelines). It is intended that the Guidelines will improve project delivery by providing for a cost benefit analysis of publicly funded projects so that they deliver value for money and advance key policy objectives.
To ensure that the delivery of infrastructure capacity can keep up with demand, it is essential that the objectives of the PSC and the Infrastructure Guidelines be balanced against the need for speedy delivery of major projects in Ireland. This approach should ensure that the Irish market remains attractive to both domestic and international contractors who can carry out this work.
We examine the key updates to the PSC, and consider how utilising a more flexible contracting approach could improve project delivery and increase contractor confidence in doing business in Ireland.
Key updates to the PSC
- The requirement at which Government approval is needed for major projects has been increased from €100 million to €200 million. The number of stages at which Government approval is required has been reduced from five to three. This should ensure a faster approval process.
- The Minister will have greater oversight in the delivery of the National Development Plan.
- The Capital Works Management Framework (CWMF) suite of contracts is subject to ongoing reform. This is welcome news to contractors, who have been concerned for some time that there is excessive risk allocation to contractors in the CWMF, and that it does not contain limitations on the contractor’s liability.
- The CWMF threshold for advertising goods and services contracts on eTenders has been increased from €25,000 to €50,000 - and from €50,000 to €200,000 for works contracts (all excluding VAT). eTenders is the Office of Government Procurement's online public procurement platform.
- The Guidelines are to be put in place and will replace the PSC.
Flexible Contracting Approach
The amendments to the PSC are likely to open up a wider debate on the use of more collaborative contract forms. Recently, we have seen increasingly widespread use in Ireland of contract forms such as the NEC suite, which is commonly used in the UK. The continued move towards more collaborative contract forms would bolster the flexibility seen from public sector bodies in recent years, which have dealt with the unexpected and high levels of inflation for materials and goods experienced by contractors in a flexible manner, even where the contract may not allow for increased costs for these claims.
The public sector willingness to look for solutions and maintain a fair and collaborative approach is welcome, particularly when dealing with extraordinary situations which may not have been fully anticipated on entering a contract. This flexibility helps to sustain a well-developed construction industry that can deliver projects on time and provide value for money. While the impact of the recent changes to the PSC remains to be seen, the changes announced to date indicate the Irish Government’s support for capital projects and their willingness to adopt a dynamic approach.
What’s next?
Currently, Government spending on capital projects is running at about 5% of national income, compared to 3% on average in Europe. This is a positive sign. Having visibility of a strong pipeline of major projects is a key factor in contractors wanting to commit resources to Ireland. In turn, the public sector has also recognised that a strong pipeline of work, including certainty of delivery and speedier approvals of planning permissions, railway orders and foreshore licenses are essential to have an attractive, developed and competitive construction industry in Ireland.
It appears that key concerns of the construction industry have been heard by the public sector, with the main areas of industry concern being inflation and extensive risk transfer to contractors. While a very high level of risk transfer to contractors may achieve results on certain projects in the short term, this approach, when taken in the aggregate across a range of projects, may not create an attractive contracting environment that will assist the country in meeting its long-term infrastructure needs. Significant cost overruns on individual major projects often attract media attention and calls for increased risk transfer to contractors. However, the Irish Government seems to be acknowledging that the solution to these commonly encountered issues may be achieved through improvements in the cost-benefit analysis of projects prior to commencement. Adopting a more collaborative approach to contracting, rather than just increasing contractors’ risk allocation, also appears to be an agreeable and sensible way forward for all.
While it has been acknowledged by the Irish Government that not all projects in Project Ireland 2040 will be developed as initially planned, more certainty is needed by the construction industry as to which projects are a priority and likely to be completed. Given the recent spotlight on creating an attractive contracting environment for capital projects in Ireland, it will be interesting to see what developments are to come.
If you would like to discuss any of the above or the infrastructure environment in Ireland more generally, please reach out to a member of our Infrastructure team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.
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