On 3rd of July 2023, Paschal Donohue, Minister for Public Expenditure, NDP Delivery and Reform, and Ossian Smyth, Minister of State for Public Procurement and eGovernment, announced amendments to the suite of Public Works Contracts. The amendments related to ‘Price Variation Clauses’, new template tender documentation, and for the first time, the introduction of Liability Caps for works contractors. The amendments are part of a push to enhance project delivery within the National Development Plan.
These changes look to address several challenges faced by contractors, not least material price inflation in recent years. The original suite of Public Works Contracts was first introduced in 2007 to facilitate tenders from contractors with ‘fixed price sums’. This was done to provide increased price certainty for public works contracts. These fixed price sum contracts have created several challenges for works contractors, particularly in periods of high inflation.
Price fluctuation for materials and fuel created uncertainty for contractors and made it less desirable to enter fixed price sums contracts. The new Public Works Contracts look to share the burden of price fluctuation across the Contracting Authority and the Contractor. This is done to make Public Works Contracts more attractive to contractors, thus increasing competition for each tender and potentially delivering better value for the Contracting Authority.
Introduction of contractor liability caps
On the 17th of July, the first tranche of amended documents was released. New ‘Limit on Liability’ sub-clauses have been included in documents PW-CF1 to PWCF8. This is a significant amendment to the Public Works Contract suite and will limit the Contractor’s liability to the Contracting Authority to a defined monetary value. Where the Contracting Authority does not explicitly specify the “Liability Cap”, a default limit is applied for the contract. Some exclusions apply to the Liability Cap, such as death, personal injury, wilful default or gross negligence. A new Guidance Note (GN 1.6.5 Liability Caps: Application in the Public Works Contract) has been provided in Pillar 4 of the Capital Works Management Framework to assist Contracting Authorities in determining the appropriate Liability Cap level for any given project.
Updates to the Price Variation Clauses
As a result of significant issues with inflation experienced by the construction sector in recent years, the government has introduced several changes to public works contracts that seek to enable Contracting Authorities to appropriately address inflationary pressures, ensuring projects can both proceed whilst ensuring costs can be appropriately controlled and managed.
For example, the 24-month fixed price period and the 15% threshold for variations in the price of materials and fuel have been removed. A threshold for inflation to be borne by the Contractor must now set by the Contracting Authority and must be between 3 and 10%.
Amendments to the suitability assessment questionnaire
The Suitability Assessment Questionnaire (SAQ) has been amended, whereby the SAQ is now issued in two parts. Part 1 focuses on Instructions to Applicants and Project Details, while Part 2 is completed by the applicant with details relating to the applicant and a declaration regarding the submission. Part 2 offers a more streamlined, singular declaration in lieu of the previous self-declaration documentation.
There have been general updates to the provisions for conducting a competition, reliance on resources, “Ground for Exclusion”, which now includes various international sanctions, and the International Procurement Instrument. Furthermore, two new “Suitability Criteria” have been added regarding Environmental Management Measures and Supply Chain tracking.
The amended documents were released as three tranches in July with an interim period of 10 days, before which the new suite of documents superseded the originals. The grandfathering period has now elapsed, and it is essential to use the new documents.
Outlook and reaction
Ultimately, these measures allow rebalancing of risk in a Public Works Contract and enable Contracting Authorities to take additional risk, with the quid pro quo being they should obtain greater market interest in projects from Contractors. The Construction Federation of Ireland has provisionally welcomed this suite of changes to the Public Works Contracts.
It would seem likely that the new contract provisions will give rise to increased administration of contracts for Contracting Authorities, and all parties to public works contracts will need to commit resources to implement the new provisions properly.
For more information and advice relating to Public Works Contracts, please do not hesitate to contact our Project Management team.