The Government has signalled new measures to reduce the State's exposure to inflation in the price of public construction contracts.
The Minister for Finance, Mr McCreevy, said last night that the reform of public construction contracts would shift responsibility for the management and control of risks from the public sector to contractors.
The measures are being introduced in an effort to avoid high inflation in the cost of road projects in particular. The Department of Finance said they would result in "significant savings" and facilitate better budget planning.
This follows the Budget decision to introduce five-year funding envelopes worth some €30 billion for major capital projects.
The initiative also includes a commitment by Mr McCreevy to change procedures for procuring architectural and engineering services. "What the Minister wants to see is a move away from a situation where fees rise as project costs rise," the Department of Finance said.
While Mr McCreevy said the initiative would result in higher up-front prices for tenders, he said the in-built protection from inflation risks meant that the final cost of a project "should be less than under current contract arrangements".
The Minister's spokesman said last night that he had no reason to believe that there would be resistance to the measures from the construction industry.
Stating that the Government would introduce the new form of contract "as soon as we can", the spokesman said Mr McCreevy had advised the social partners of the development.
Mr McCreevy is also planning to engage with the construction industry forum, which represents the interests of the construction industry and related professional bodies.
In a statement, the Department of Finance said the new measures would help ensure that the expenditure on capital projects in the next five years will be used effectively.
"While there are, of course, many causes of cost overruns, this particular initiative seeks to address an important component of cost overruns that can help improve cost control and facilitate improved budget planning going forward. This will be a challenge to all concerned."
The Government will introduce amendments to the terms of the standard public sector construction to allocate the risks in a project "to those best able to manage and control it". Such risks include inflation in labour and materials costs.
The Department said the shift of responsibility for risk to contractors will change the practice "where the bulk of risks are borne and paid for by the public sector body at the end of the contract".
It said that this can result in a significant difference between the price set for the project at tender award stage and the final price paid by the public body.
"In the new approach, contractors will be required to submit competitive tenders where the price, including a cost for the identified risks they intend to manage and control, is tendered for on a lump-sum, fixed-price basis. This contract price should remain firm and fixed for the duration of the project to the greatest extent possible."
