The sector must take account of changed economic climate, writes Liam Kelleher

Rapid economic growth since the mid-1990s has spurred output and employment expansion in the construction industry. Broadly, output has doubled since the mid-1990s, to €20 billion per annum currently, while employment has increased by two-thirds. Both public and private investment have grown in roads, public transport, hospitals, schools and housing.

Despite this investment, an infrastructural deficit (which already existed) has accumulated, which the National Development Plan (NDP) seeks to redress. In addition to the NDP, public-sector projects such as the Metro in Dublin and the capital expenditure in the national health strategy have been added to the public capital programme.

Why did the deficit grow? For 20 years, from 1981, the public capital programme as a percentage of GNP declined. By European standards, we entered the 1980s with an infrastructural deficit, which increased during that decade. Additional expenditure from 1989 was very important in the context of the stagnation of the 1980s but was doing little more than maintaining the public capital programme as a percentage of GNP.

Our recent growth has been achieved by additional investment, employment and higher productivity. With unemployment reduced from 17 per cent to 4 per cent, future growth rates depend on the rate of productivity growth. Research work undertaken for the Construction Industry Federation (CIF) by Prof Gerry Boyle of Maynooth has highlighted the role of public capital expenditure in stimulating private investment. Greater private investment then contributes to enhanced productivity.

Construction output is currently restrained, with drops occurring in some sectors. Prices are stable and employment has dropped, year on year by 4.2 per cent, according to Central Statistics Office figures for May. Most importantly, in the monthly survey undertaken by the ESRI for the European Commission, figures for June 2002 show all the short-term forward indicators are declining - activity, order books, employment and prices.

There is a serious shortage of projects due to commence construction in 2003.

Economic circumstances have changed greatly since the NDP was drawn up but the issues the plan was to tackle are as valid now as they were then. Even more than in 1999, implementation must be about priorities, project management, value for money and the raising of additional finance.

The industry has invested in people and equipment in order to deliver the NDP. Most cost-effective delivery will come when there is consistency and certainty through the entire planning and delivery system. Stop-go policies add to costs, disrupt planning, shake confidence and cost jobs. The industry is eager for projects, and eager, as ever, to deliver.

The examining and reaffirming of priorities is essentially a task for Government. On project management, we have previously referred to the need for consistency and certainty through the planning and delivery systems - knowledge of projects coming to tender and to construction, and confidence that those dates will be adhered to, is vital for an effective construction industry. A balanced mix and flow of projects, in size and geographically, aids cost-effective implementation and value for money. Tendering and contractual methods must be appropriate to the scale and complexity of projects.

We welcome the innovative thinking by Government as regards the funding of capital projects. CIF believes the proposed National Finance Development Agency should have a target of raising €3.5 billion to €4 billion plus a year over the next 15 years or more, to add to the pool of funding for investment. We need to eliminate our infrastructural deficit over a generation. This public infrastructure will be a key factor in the State's competitiveness as a European economy and world trader, as a location for inward investment, and as a country where productivity growth enables enhanced living standards and fair distribution of increased output.

Growth in the economy will be modest in the next two to three years. Tender price changes will be equally modest.

With one exception, unions in the construction industry strike a hard bargain for their members and stick to those terms. Where issues are raised, established industry procedures are followed. In relation to bricklaying and blocklaying, the pattern has been different. Industrial peace has not prevailed. Disruptive work practices, unofficial action and low productivity performance have raised costs and brought uncertainty to project completion.

In early autumn, the Taoiseach will be inviting organisations to participate in negotiations on a new national agreement. CIF will accept that invitation.

If talks on a new partnership agreement conclude successfully, the terms must be for restrained increases in wages within the industry, reflecting external circumstances, and the wage growth of the recent past. High productivity site working is essential. The type of disruption that occurred in one area of the industry in recent years cannot be accepted. Were it to occur, the cost in lost projects and employment would be high.

Liam Kelleher is director general of the Construction Industry Federation