Proposed Government measures aimed at reducing the State's exposure to inflation in the price of public building contracts may prove counterproductive, the Construction Industry Federation has claimed.
The federation said the initiative by the Minister for Finance, Mr McCreevy, to shift responsibility for the management and control of risks from the public sector to contractors would not give greater value for money.
Such a view contrasts with that of the Department of Finance, which has said that the proposals would result in "significant savings" and facilitate better budget planning.
While the federation acknowledged that such measures would reduce the gap between the tender price and the final cost, it said the Government's requirement for budgetary certainty would not be met.
It argued that there would be no overall reduction in costs because fixed-price contracts would command a premium to take account of unforeseen cost increases. "Introducing fixed price contracts will result in higher tender prices as the risk of future price increases and unforeseen events will have to be allowed for," said the federation.
"In this regard the price of steel has increased by up to 50 per cent since the start of 2004 and where contractors are asked to carry the risk of such price increases they will have to apply a premium to cover the contingency. In fixed-price contracts this premium will be paid by the client whether costs increase or not." The federation said the "accurate estimation" of likely project costs was central to the Government's objective of cost-effective procurement.
This would enable the completion of realistic budgets, it said. "The Government need for budgetary certainty is understandable.
"However, this cannot be achieved by transfer of risk to contractors alone. Better management of projects and a more efficient statutory planning system will have much greater effect," the federation said.
