Government expects building costs to be static

Private builders will face stiffer-than-expected negotiations to win National Development Plan contracts following a Department of Finance analysis which estimates that construction inflation will be static next year.

The freeze on prices marks a significant change in the negotiating balance between the Government and builders, whose prices rose by 12.5 per cent on average over each of the last three years.

In June, Davy Stockbrokers warned that some projects might have to be postponed because major construction firms did not have enough staff or time to complete the schemes.

The Minister for Finance, Mr McCreevy, yesterday published an agreement between the Government, private industry and trades unions on the scope of private investment in public infrastructure projects.

More than 135 contracts are expected to be awarded to national and international private firms to build schools, sewage, water and waste treatment plants over the next three to four years. The "framework for public-private partnerships" lays down strict rules to govern the awarding of contracts and the monitoring that will take place afterwards to ensure standards are maintained and that profits are reasonable.

Under the plan, the trade unions have agreed changes that will mean some State-employed staff will transfer to private companies, though their working conditions will be guaranteed.

Mr Paddy Keating of the Irish Congress of Trades Unions acknowledged that some union members are opposed to private-sector involvement, but he said many of them were not aware of the new agreement.

The involvement of the unions was crucial, he said. "It is extremely important that this has come about through the social partnership model. The UK terrified many. Services were cut, prices were reduced."

The unions had also secured an agreement that alternative roads would be available for those who did not want to pay motorway tolls, he claimed at the press conference to launch the framework.

The agreement is not "ideological", all the parties said. Private companies will be encouraged to become involved in areas if they can do particular jobs more quickly and cheaply, Mr McCreevy said.

However, he warned that companies must not expect soft deals: "Some people wanted to have their cake and eat it. If you take the risk, you are entitled to the profits. Not otherwise," he warned.

The lessons from the United Kingdom have been well learned, all sides said. There, the Thatcher government pursued private involvement as a matter of principle, and not of efficiency.

Ireland's progress on the issue has impressed international observers, said Mr Peter Brennan of the Irish Business and Economic Confederation: "This was a blank sheet four years ago. Now we are well advanced."

Public-private partnerships, said Mr McCreevy, could help to provide the infrastructure that Ireland badly needed to sustain employment and the economy over coming years.

He said he believed the framework would avoid problems with the "difficult and complex contracts" that plagued many of the projects carried out in the United Kingdom.