A race to the bottom?

The Construction Industry Federation (CIF) has called on the Irish Government to re-consider the current public procurement process following a series of high profile contractor collapses and examinerships in recent months.

The CIF believes that the practice of ‘lowest-cost tendering’ is encouraged by the current public procurement process and has resulted in an industry-wide ‘race to the bottom’.

Martin Lang, Director, Main Contracting, CIF said, “We have seen a concerning number of high profile contractor collapses and examinerships in recent months. Many of these have in some way fallen foul of what turned out to be unsustainable procurement. Under the current public procurement rules, the process favours the lowest price rather than the best price. Therefore, if the initial brief is unclear, problems are inevitable as the design team works from that brief. It then goes out to tender with documentation that has not been adequately prepared.”

Martin added that CIF members tender for a particular project knowing that there is often no road back to review the original design.

“They can’t point out deficits or request background information, etc. Once our members sign that contract, they take on all of that risk.”

One of the serious issues in the public sector contracts remains ‘inflation risk’ and that of background information. “The risk should lie with the person in the best position to manage such a risk. The contractor is not in a position to manage, in a balanced way, the risk condensed from the beginning due to poor tender documents and lowest price criteria – which is a race to the bottom,” said Martin.

Commenting on the issue, Sean Downey, Director Specialist Contracting, CIF said, “Thursday, July 26 marks the second anniversary of the day the Minister for Jobs, Enterprise and Innovation, Ged Nash signed the commencement order for the Construction Contracts Act (CCA)2013. This legislation was a big step forward for this industry.

“It places a statutory responsibility on those procuring construction works to pay their contractors and sub-contractors. It prohibits the old excuse of ‘pay when paid’, provides mechanisms for dispute resolution and allows a contractor to suspend works in the event of non- payment.”

However, with a series of recent high- profile insolvencies and 17 school projects in 2018 alone suspended due to contractor financial difficulties, Sean says we must ask ourselves what is going wrong.

“For the NDP to be successfully delivered, the clients of the industry need to take some degree of ownership and consider how they are procuring works. They need to have the oversight to analyse how healthy their supply chain is and also consider payment protection measures to ensure that those who do the work get fairly paid for that.

“If, as with the Carillion case, the state does not want to pay twice for the same work, it needs to put measures in place to ensure that money reaches those it is intended to. That may mean strengthening the existing CCA to provide certainty of payment or involve the introduction of other mechanisms that guarantee transparency and accountability throughout the project life cycle.”

T: 01 406 6000 – E: info@cif.ie
W: www.cif.ie