Government to propose solutions for builders set to suffer from inflation

Government officials will next week propose possible solutions for builders who risk losing millions of euro on State contracts as a consequence of inflation, according to Construction Industry Federation (CIF) director, Tom Parlon.

The federation met Minister for Public Expenditure Michael McGrath on Tuesday to discuss the problems faced by members working on State contracts that were agreed before inflation sent building costs soaring.

Mr Parlon said Mr McGrath has subsequently asked the Office of Government Procurement to come back with firm proposals to tackle the problem by next week.

State construction contracts tie builders to a set sum for each project with no leeway for risks, including the rising materials costs that began hitting the industry a year ago.

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As a consequence, many contractors now face steep losses on State contracts agreed before the problem emerged unless a solution is found, Mr Parlon warned on Tuesday. He said he was aware of one company that risks losing €16 million on one such project.

Mr Parlon said builders could not tender for State projects in the current climate, jeopardising Government infrastructure plans.

Raw materials

Mr Parlon said the cost of key materials had risen sharply since the start of this year alone. Rolled steel now sells at €1,500 a tonne, up €600 since February. Steel rebars, used for foundations, have risen to €1,350 a tonne from €900 over a similar period, the CIF director added.

“There has to be fairness. Contractors should not have to shoulder all of this risk,” Mr Parlon argued.

He added that Mr McGrath understood the difficulties that rising inflation created for contractors. Construction inflation tipped leading contractor Roadbridge into insolvency earlier this month, hitting up to 1,000 jobs.

Mr Parlon warned that inflation had left many companies on the brink of following the Limerick-based player.

Sub-contractors and suppliers are regularly caught in the fall-out when big builders are wound up. Consequently, job losses generally go beyond those directly employed by the company itself.

Mr Parlon stressed that builders could be justified in walking away from State projects to which they have committed if continuing with the work endangered their businesses.

“They also have obligations to their own firms, to their workers, suppliers and their lenders,” he said.