Construction material inflation ‘having impact on tender prices’

Contractors are “finding it increasingly difficult” to stand over tender prices for periods of up to two years due to the rising cost of construction materials, the Department of Housing has been told.

According to the Central Statistics Office’s most recent wholesale price index, from September, the price of structural steel and reinforcing metal was up 26.7 per cent year on year.

The price of rough timber, meanwhile, was up more than 60 per cent and the cost of plaster was up almost 20 per cent.

Several local authorities highlighted the effect this has on house building, according to minutes of meetings with the Department of Housing, which were released under freedom of information laws.

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In July, Kildare County Council said "construction cost inflation is now impacting on tender prices and that contractors are finding it increasingly difficult to stand over prices for periods up to two years".

“It was noted that the retendering [of] projects is not helpful. KCC noted that the reasons for these increases appear to be as a result of reduction in availability of both materials and labour,” the minutes state.

Waterford City and County Council noted "potential issues" with supply of PVC, and an overall 20 per cent uplift in the cost of some work items.

Paul Johnston, senior engineer at the council, also referenced anecdotal evidence of labour shortages in the market "which it is understood is linked to the Pandemic Unemployment Payment".

In May, Cork City Council (CCC) said supply chain issues are being experienced nationwide with turnaround times being delayed, and rising prices which would "potentially impact on future tender prices".

Meanwhile, construction company Sisk said the increase in prices is "serious and unsustainable".

In a letter to Minister for Housing, Darragh O'Brien, the large builder warned the escalating price of building materials risked "derailing" the completion of current projects, and could make "future projects commercially unviable".

Mark McGreevy, chief operating officer of John Sisk & Son, said the “crisis” in the sector risked jeopardising key Government initiatives, “such as house building and national infrastructure” projects.

In the June 3rd letter, released under FOI, the construction firm proposed that building material cost increases be “jointly” managed between builders and those contracting work.

“A risk management strategy which does not recognise the severity of this problem poses a far greater dilemma should we or one of our supply chain get the calculation wrong, potentially leading to catastrophic financial failure,” Mr McGreevy said.

It was “untenable” for the construction industry to take on all of the risks from “exceptional price inflation” under current State building contracts, he added.

“We are concerned how this will stymie our plans to support the delivery of social and affordable homes at scale as a contract builder working for State-related entities,” Mr McGreevy said.

Sisk was regularly facing shortages of key materials in the supply chain, which was resulting in three- to four-month setbacks on certain building projects, he said.

In a July briefing note, the Department of Housing identified a variety of potential causes behind the price surge, including Brexit, Covid-19, increased demand and other forces, such as adverse weather conditions in the US, mining strikes in Chile, electric car production, and a slowdown in opening new mines.

A spokeswoman for the Department of Public Expenditure and Reform, under whose remit the issue falls, said there is uncertainty around the intensity, duration and scale of the price movements.

“The Office of Government Procurement is currently considering the optimum means to bring greater certainty with respect to future tenders in light of this uncertainty,” the spokeswoman said.