Contractors this week laid out their arguments against planned fixed-price contracts by the Irish government

A report by trade body the Construction Industry Federation (CIF) claimed a switch to the new contract was totally unnecessary, as the contracts themselves were not causing cost overruns on public projects. It added that introducing the new documents, first revealed in QS News last week, would further slow down government spending and lead to long and protracted legal disputes.

The report, launched on Tuesday, concluded: “The main reasons for past cost increases have nothing to do with the construction contract. Many people on all sides of the industry believe the main issue of concern to the government can be addressed by amendments to existing contract forms and by using the contract forms appropriate to the scale and complexity of the project.”

The report added that the move would “delay implementation of capital investment projects and might not deliver the price certainty being sought by the government” and would “seriously damage the construction industry, impact particularly severely on small and medium-sized enterprises less able to manage risk”.

The report laid out three main areas of concern against the move:

Contracts will mean ‘rich picking for lawyers’

CIF report

  • Unbalanced risk allocation – contractors are being asked to shoulder risks such as providing for a fixed price for three and a half years and to accept inflation risk up to 80%. Other risks include contractors being responsible for utility companies moving or providing services when they say they will and bearing the costs if they do not.
  • Risk transfer – impact on small and medium-sized firms. These firms will not survive with the contracts now proposed.
  • New contracts will mean “rich picking for lawyers” – the new form of contracts are without generic origin, are untried and untested and “are certain to result in lengthy and protracted legal disputes as the true meaning of words, phrases and clauses is ascertained by the courts”.

The CIF also revealed that the Irish construction market was in a rosy state.

CIF report highlights: Irish construction market 2005

Construction output to exceed £19bn, a new record

Housing output to be in the region of 77,000 units
Housing demand to stay strong for years ahead

Construction employment in excess of 300,000
Government capital spending fell by £273m for the eight months to end of August, a 15% fall. If this rate continues for the year underspend will total £607m in 2005.

Input costs of labour and materials rose by 3.7%
Non-housing contracting returned to growth in 2005, led by retail and hotel sectors, following three years of stagnation

Source

QS News