The Minister for Public Expenditure and Reform has announced subsidies of up to 70% of higher materials and energy costs to public works contractors.

Michael McGrath said he is introducing an ‘Inflation Co-operation Framework’ for those parties engaged under a public works contract. 

The stated rationale is safeguarding public projects that are already under construction and to mitigate the risks of significant losses being sustained by contractors.

McGrath explained that 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.

The minister added: “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 the state bearing up to 70% of the additional inflationary related costs. The Framework will apply to payments made from 1 January 2022.”

In Association with

Minister McGrath stated: “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.

“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.

“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.”

Back payments

Department officials clarified that the Framework 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 contracts that commenced under the amended forms of contract, the Framework will permit the recovery of costs arising from fluctuations in energy prices.

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. 

Guidance, workbook templates and forms of agreement will be published by the Office of Government Procurement shortly.