Likelihood of contractors facing insolvency ‘increasing by the day’, warns sector

Contractors have significant concerns over the viability of current contracts due to supply chain issues and hyperinflation, representatives from the sector have said.

The Construction Industry Federation (CFI) said the likelihood of going insolvent is "increasing by the day".

Speaking at a meeting of the Oireachtas Transport committee on Wednesday afternoon, Tom Parlon, director general of CFI, said most construction materials have seen "significant jumps in price" in recent months.

“The current system has long been unable to manage the impact of inflation, supply chain disruption and other industry-recognised risks,” he said.

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“When challenges arise in public projects, this means the commercial agreements leave little room or budget for putting things right. These challenges are further exacerbated by the focus public procurers in Ireland place on the lowest price tenders.”

He added: “In a €20 million project, you could be down €2 million at the moment. That’s not marginal, that could bring a company under. Every other day I hear of a new firm under pressure. It’s a very, very uncertain time.”

To address this issue, Mr Parlon called on the Government to change the current public works contracts to one that ensures the equitable allocation of price variation risk between client and contractor.

Paul Sheridan, director of main contracting at the CFI, said companies' balance sheets are "being highly damaged", affecting their "ability to look into the future in business".

Inflation issues

There were 138 contractors in the Irish market, but this has decreased to 77, Mr Sheridan said.

“The likelihood of going insolvent is increasing by the day. We are seeing a thinning out of the industry. I’ve never seen a market like it, since probably 2009 in terms of the damage being done to balance sheets and the ability of contractors to continue to absorb these costs,” he said.

“Any of the contractors who have entered into a contract since January 2021 is highly unlikely to be coming out of those contracts with a healthy profit to allow them to invest in more talent and innovation.”

Speaking at an earlier session of the committee, Ethna Brogan, assistant secretary at the Department of Transport, said supply chain difficulties have been present for some time, but "inflation issues have ramped up in the past weeks and months".

“That risk is there that we’re not going to be able to deliver to the extent that we thought we might if costs continue to rise,” Ms Brogan said.

The department has been told that these difficulties are resulting in timeframes being put out.

“In some cases the deliverability of projects for the original prices that were tendered is becoming untenable but not in all cases,” she said.

Ms Brogan added that the department is “quite pressed” for funding this year, adding that six road schemes were not’t provided funding in 2022 as a result.