Nine in ten homebuilders say they are no longer willing to commit to fixed price contracts due to the expected surge in inflation – a move with significant implications for private and government sector bidding.
Higher or open construction costs will put pressure on house prices – where builders are already saying profit margins are tight – and on major government procurement programs, including potentially the long-delayed National Maternity Hospital.
In April, Health Secretary Stephen Donnelly acknowledged that the cost of the National Children’s Hospital, currently under construction, had risen to €1.73 billion, compared with a €1.4 billion capital budget approved for the program in 2018.
According to the Construction Industry Federation’s (CIF) Construction Outlook Survey, 85 percent of builders expect prices for projects to rise in the next three months.
The most important challenges are the increased cost of raw materials (88 percent), access to skilled labor (72 percent) and fuel costs (68 percent).
Builders are also now seeking a “fair price variation clause” to be included in public contracts that would allow them to recoup higher costs regardless of contracted prices.
According to the surveyed builders, higher construction costs reflect higher prices for raw materials such as steel due to supply chain disruptions, including the war in Ukraine.
CIF Director-General Tom Parlon said higher costs would impact the pipeline of construction activity, particularly in public tenders.
“No one can be expected to commit to a specific price for projects that can take years when costs are increasing daily.
“It’s virtually impossible to estimate where the costs will go based on the levels of inflation that we’ve seen in the industry over the last 18 months and particularly since the turn of the year,” he said.
Still, any change in government contracts that might not protect taxpayers’ financial interests is likely to be contentious for the government, which is under pressure to implement previously announced plans for new or expanded hospitals, schools and housing. Rising construction costs have potentially worrying implications for private and public housing.
March home price data had provided some good news on prices, showing that the pace of monthly increases had slowed to 0.6 percent, a sharp slowdown from the pace of recent months.
However, renewed cost pressures could push up asking prices for new homes and public housing costs, or even discourage developers from moving forward for fear that margins will be eaten up by higher input prices that the market can’t absorb.
Despite the pressure on raw material costs and uncertainty about future profitability, the survey shows that the construction sector is expanding.
The turnover of four out of ten construction companies has increased in the last three months.
A third of construction companies intend to hire in the next three months. The survey was conducted by Accuracy Market Research between April 11th and 19th and 342 CIF member companies participated.
https://www.independent.ie/business/irish/builders-say-they-cant-lock-in-price-of-contracts-over-expected-rise-in-inflation-41676925.html Builders say they cannot lock in the price of contracts beyond the expected rise in inflation