Builders are walking away from major school building and other public sector contracts they have won because of rapidly rising costs, the leading industry group has said.
The Construction Industry Federation (CIF) says builders cannot afford to work at prices pitched up to 18 months ago when they were tendering for jobs, given the rapid increase in the cost of materials and labour since then.
While clients in the private sector can be flexible in addressing exceptional unforeseen increases in costs, CIF director general Tom Parlon said, there is no similar leeway in public contracts.
“It can take forever to go from the original tender to getting the nod to start the project,” Mr Parlon said. “And the structure of the public sector tender process means there is no flexibility to allow for increased costs.”
Raw materials
According to the Central Statistics Office’s (CSO) wholesale price index, construction material prices have jumped 10 per cent in the 12 months to July. Within this, timber is close to 60 per cent higher and some steel costs have jumped even more.
Labour costs have also climbed. Average weekly earnings in construction jumped 16.2 per cent in construction between the second quarter of 2020 and the second quarter this year. That is faster than the increase in pay in any other sector of the economy, according to the CSO.
Mr Parlon said it was now costing more to lay a brick than to buy it. A shortage in certain trades had been a factor in driving pay higher but a general shortage of workers meant contractors forced to pay weekend and overtime premiums just to keep up with work schedules, he said. Contractors were also struggling to hold on to key staff.
And trade unions are now understood to be looking for annual increases over the next three years of over 4 per cent under a sectoral employment order (SEO) for the general construction sector in discussions currently before the Labour Court.
Contracts
As a result, Mr Parlon said, builders are now refusing to sign the contracts they have been awarded because, once they sign, they will be required to deliver at the tender price.
He said one builder had contacted him in recent days to say he would be up to €500,000 out of pocket if he proceeded with a public sector job after submitting the winning tender bid. Mr Parlon said he was aware of cases where all five shortlisted contractors for a tender had walked away.
“A substantial number of school projects will have to be retendered,” Mr Parlon said. That will increase already long lead in times for schools looking for a green light from the Department of Education for required upgrades.
