Taxpayers subsidize 70 percent additional inflationary construction costs for public works contracts

Schools and roads won’t be built unless taxpayers subsidize up to 70 percent of the additional cost of inflation for new projects, Public Expenditure Secretary Michael McGrath said.

The abinet ministers this morning signed a financing of 30 to 40 million euros to allow inflationary increases in construction costs for public works contracts.

The funding applies only to new contracts agreed from January 1 this year and provides for the state to cover costs of inflation hikes of up to 70 percent.

The recent increase in construction costs is due to inflation and the war in Ukraine, McGrath said.

Secretary McGrath said school and road projects could not be built at all unless the government took action.

“There have certainly been examples of bidding projects where competition has been less than expected, be it in relation to road projects or school projects,” he said.

“If we didn’t make any changes, I think we would take on all the projects that were at risk.”

Mr McGrath said the state’s intervention will ensure projects are built and delivered in accordance with the National Development Plan.

“It means recognizing the reality of what is happening in the market. I do not think it is reasonable to expect the industry to bear the full burden of exceptional inflation associated with the post-Covid recovery.”

Funding will come through a special framework, the Inflation Cooperation Framework, to be released by the Office of Government Procurement in the coming days.

This includes guidelines, workbook templates and agreement forms.

It is the latest example of the challenges facing the state as construction costs increase. Housing Minister Darragh O’Brien announced today that the state will pay property developers up to €120,000 per dwelling, according to the Crói Cónaithe Cities Fund, first reported in the Irish Independent.

Without the financial intervention, the government feared that the apartments would not be built otherwise, as rising construction costs made them unviable. Taxpayers subsidize 70 percent additional inflationary construction costs for public works contracts

Fry Electronics Team

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