The Minister for Public Expenditure and Reform, Michael McGrath TD, yesterday announced details of further measures to address the impact that exceptional inflation in construction materials and energy is having on public works contracts.
In the interest of safeguarding public projects that are already under construction and to mitigate the risks of significant losses being sustained by contractors, he is introducing an Inflation Co-operation Framework for those parties engaged under a public works contract.
The framework will facilitate both parties to engage with one another for the purpose of addressing the impacts of this most recent onset of exceptional inflation and supply chain disruption and will operate on an ex gratia basis. It will set down the parameters within which parties to a public works contract calculate additional costs attributable to material and fuel price fluctuations using price indices published by the Central Statistics Office.
In recognition that neither party is responsible for the global events that have given rise to inflation, it is proposed that the additional inflation costs will be apportioned between the parties, with, subject to budgetary constraints, the State bearing up to 70% of the additional inflationary related costs. The framework will apply to payments made from 1 January 2022.
Key provisions of the Inflation Co-operation Framework:
• It will operate from the point at which the parties agree to engage until the project is completed.
• Given that further inflationary pressures have been building since the beginning of 2022, it will provide for the back-payment of a proportion of inflation related costs (on materials and energy) to 1 January 2022 on those contracts that are in progress since the beginning of 2022.
• Going forward, for the duration of the framework, additional inflation costs will be calculated in a similar manner.
• For more recent contracts ( those that commenced under the amended forms of contract), the framework will permit the recovery of costs arising from fluctuations in energy prices.
• For all contracts currently in progress, where it can be shown that a supply chain disruption has led to a delay in completing the project, contractors will not be held liable to pay liquidated damages for the late delivery of the project.
The use of the framework is voluntary, but participation by the parties is encouraged.
Guidance, workbook templates and forms of agreement will be published by the Office of Government Procurement shortly.