Dáil Éireann Debate, Wednesday - 24 October 2018
81. Deputy Joan Burton asked the Minister for Public Expenditure and Reform his plans to review existing public procurement contracts in view of the liquidation and insolvencies of over 40 construction firms since the beginning of 2018 due to losses incurred from public contracts; and if he will make a statement on the matter. [43833/18]
Amharc ar fhreagraI am not aware of any published evidence that links recent construction company insolvencies and liquidations directly with the public works contracts. Insolvency statistics published for Q1 2018 indicate the construction industry recorded 42 insolvencies (22% of the total number of insolvencies), a 17% increase on Q1 2017. Published analysis points to legacy issues related to the property crash rather than the public works contracts as the cause of these insolvencies.
The total capital expenditure channelled through the public works contracts accounts for approximately 20% of the total value of construction output (industry estimates put this at €19.5 billion for 2018). Whilst it is accepted that a number of the insolvencies that have arisen involve companies who were operating under public works contracts, those same companies would also have been operating under a range of the other forms of construction contract widely used by private sector construction clients.
Analysis undertaken in the UK in the wake of the collapse of Carillion has highlighted the low margins (between 1 – 2%) generally made by main contractors in a sector that is traditionally seen as high risk. Given the cultural similarities between the UK and Irish construction industries there is every reason to believe low margins are also prevalent in the Irish construction sector. This culture must be addressed by the industry if it is to service its client base in a professional manner.
The impact of awarding contracts at low prices was highlighted in the Report on the Review of the Performance of the Public Works Contracts published in 2014. A range of measures was recommended in that report to discourage unsustainably low pricing, amongst other aspects. Most of these measures have been implemented since 2016 and are designed to give contracting authorities much greater detail on the price make-up.
A further measure identified in the Report is the development of a medium term strategy for the procurement of public works projects. Engagement with industry stakeholder bodies has recently commenced on that strategy which will outline the optimum means of procuring the necessary expertise to deliver public works projects in a sustainable, efficient and cost effective manner.
