Regulations aimed at protecting civil engineering companies from below-cost tendering will be implemented in January, the Department of the Environment has stated.
Recommendations covering the public-sector tendering process are expected to prevent margins being squeezed on construction companies, following the collapse of Irishenco with the loss of 250 jobs last week. Irishenco, which was involved exclusively in civil engineering works, had a high exposure to the open tendering process favoured by the State in awarding contracts for infrastructure projects.
Open tendering on projects worth more than £1 million will be replaced by a two-stage selective tendering process involving a pre-qualification procedure followed by an invitation to between five and eight contractors to submit tenders.
"The theory is that you will get more sane pricing than if you have 30 fellows bidding," a Department of the Environment spokesman said. He said that the open tender process had been traditionally favoured by the State for reasons of "accountancy transparency". The implementation of recommendations on the unregulated construction industry would help prevent further closures of building companies operating on tight margins following the Irishenco collapse, a member of the Forum for the Construction Industry has said.
Mr Kevin Kelly, a member of the strategic review committee of the construction industry, said the contracting side of the construction business was "extraordinarily competitive" and that the tendency for the lowest tender to be accepted in many projects was a contributory factor in tight margins.
Mr Kelly, who is also the managing director of John Sisk Ltd and a past president of the Construction Industry Federation, said the problem of low tendering was acute in civil engineering projects where there were smaller volumes of business.
Companies, once they embark on a project, can be faced with unexpected escalating costs due to sterling appreciation, wage increases and unforeseen delays.
"If you get a large number of contractors prepared to tender, in the vast majority of cases, not in every case, the job is awarded to the lowest tender if it can comply with performance bond requirements and other contract requirements. But there is never an investigation as to whether a contractor is below cost and in my view there should be," he said. An Irishenco creditors' meeting will be held on July 20th where the directors will seek the approval of Mr John Dowdall, of BDO Simpson Xavier, as liquidator. The financial controller and secretary of the company, Mr Jerry Cunningham, said earlier this week that Irishenco's tenders had always been "realistic" but that there could be a variation of 20 per cent or 30 per cent between the highest and lowest tender for a project. "We have not won any contracts over the past 12 months because we have not dropped our prices," he said. Mr Terry Hobdell, a creditor of Irishenco, said that the sub-contractor was protected only "by his animal cunning and guile" when offering services to large construction companies. "They are working on tight margins. The sub-contractor is working on even tighter margins, and they are relying on these guys to pay them," he said.
