The Public Works Contract has undergone significant revisions to enhance the level of assurance concerning risk, in response to the ongoing difficulties experienced in the construction market.

The amendments were announced by the Minister for Public Expenditure, National Development Plan Delivery and Reform, Paschal Donohoe TD, and Minister of State with responsibility for Public Procurement and eGovernment, Ossian Smyth TD.

The package includes:

• Introducing Liability Caps for Contractors (as previously announced)

• Amending the Price Variation Mechanism for recovery of inflationary cost to an approach solely based on published indices

• Removing the fixed price period for materials, energy and fuel;

• Lowering the threshold for recovery of inflationary costs in key material categories

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• Introducing a simple price variation provision to cover materials in Public Works Contracts of lesser value.

While the acute pressures on supply chains and inflation costs have eased, prices are not expected to return to 2020 levels. Contracting Authorities will now be required to provide for inflation above a pre-defined threshold in the project budget, rather than transferring that risk to the contractor in a competitive pricing environment.

Limiting the Liability of a contractor to a monetary amount proportionate to the project, will also deliver greater certainty as to the extent of a contractor’s financial exposure under a public works contract. This follows on from similar measures introduced in March for construction consultancy contracts.

The Price Variation mechanism will operate using a formula fluctuation method which responds to movements in the publicly available indices published by the Central Statistics Office, ensuring that both parties are adhering to a fair and transparent process.

Currently contractors may be compensated for inflation in excess of 15% for materials and fuel. This threshold is being reduced to a range between 3-10% from which contracting authorities will select a level that reflects the project’s main inputs. It will allow for a certain level of inflation to be properly priced in tenders whilst reducing the potential to over-provision for inflation risk which may make projects unaffordable.