Sunday, June 26, 2022

Builders say they cannot lock in the price of contracts on expected rise in inflation

Nine out of 10 builders say they are unwilling to commit to fixed price contracts as a result of the expected jump in inflation – a move with major implications for private and state sector tenders.

Higher or open construction costs will put pressure on home prices – where builders already say margins are tight – as well as on major public procurement plans for, potentially, the long-delayed National Maternity Hospital.

In April, Health Minister Stephen Donnelly acknowledged that the cost of the National Children’s Hospital, which is currently under construction, had risen to €1.73bn compared to the €1.4bn capital budget approved for the scheme in 2018.

According to the Construction Outlook Survey of the Construction Industry Federation (CIF), 85 per cent of builders expect projects to be priced higher in the coming three months.

The major challenges are increased raw material cost (88pc), access to skilled labor (72pc) and fuel cost (68pc).

Builders are now seeking a “fair price variation” clause to be added to public sector contracts that would allow them to offset higher costs regardless of contracted prices.

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According to surveyed builders, high building costs reflect the high price of raw materials, such as steel, as a result of supply-chain disruptions, including the war in Ukraine.

CIF Director General Tom Parlon said the high cost is going to impact the pipeline of construction activity, especially when it comes to public tendering.

“No one can be expected to commit to a fixed price for projects, which can take years when costs are rising on a daily basis.

“It’s practically impossible to predict where costs are going based on the level of inflation we’ve seen in the industry over the past 18 months and especially since the turn of the year.” They said.

Still, any changes to state covenants that may fail to protect taxpayers’ financial interests are likely to be controversial for the government, which is looking to deliver on previously announced plans for new or expanded hospitals, schools and housing. is under pressure. The rising cost of building has potentially worrying implications for the private sector and public housing.

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House price data for March offered some thinly good news on prices, showing that the monthly pace of growth had fallen to 0.6 pc, versus a significant slowdown in recent months.

However, the renewed pressure on costs could push up new-home prices and reduce the cost of public housing or even discourage developers from pursuing plans out of fear margins, driving higher input prices into the market. cannot be absorbed.

Despite pressure on raw material costs and uncertainty about future profitability, the survey shows that the construction sector is expanding.

Four out of 10 construction companies have increased their turnover in the last three months.

A third of construction firms intend to hire in the next three months. The survey was conducted from April 11 to 19 by Accuracy Market Research in which 342 CIF member companies participated.

Nation World News Desk
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