Friday , April 16 2021

Contractors on major road projects demanded 850m euros over agreed prices

Contractors working on major road projects have asked for more than 850m euros over agreed tender prices, new figures show.

The data published for the Irish Times refer to 15 travel projects with a tender price of more than 40 million euros, between 2008 and 2018.

In the end, slightly less than 270 million euros were paid above the tender price, and the bill for all projects amounted to 2.02 billion euros.

Ireland for Transport Infrastructure (TII), which manages major state transport projects, said that, although payments were above tender prices, the total amount paid for road projects goes into the budget.

Full budgets for each project include contingencies and other amounts in addition to the tender price. Individual project budgets are commercially sensitive, but TII said the combined budgets for building 15 projects are 2.3 billion euros, meaning they have reached 11 per cent below the target.

However, sources from the infrastructure sector said that the difference between tender amounts, payments and requested amounts is the result of a productive process rooted in the type of contract that governs most projects.

The public works contract awards bids based on the lowest reported price. Peter Valsh, CEO of TII, said: “The contract was given at the lowest price offered, so suppliers must have an optimistic view of how the project will go,” adding that bidders “cannot expect” to win the contract otherwise .

“You will never achieve the price offered, because that is the most optimistic view of how things could happen.”

Cost disputes

Construction sources say the process is characterized by contradictory cost disputes, leading to lengthy arbitration and costly legal proceedings. As the state prepares to spend more than 100 billion euros as part of the Ireland 2040 Project, Mr Walsh warned that the public works contract would not work for so-called “mega-projects”.

“This type of public works contract would not be suitable for mega-projects like Metrolink,” he said. Two other types of contracts – the New Engineering Contract (NEC) and the so-called “Fidic” contract – would be more appropriate, he said.

TII has tried these contracts, and the approval process to allow them to be considered an option for infrastructure projects is under consideration, with the support of the State Procurement Office.

A spokesman for the Construction Industry Association said the current contract exposes “all risk for any possibility to the contractor” and that he was looking for “more collaborative ways of contracting”, such as NEC.

“Unfortunately, the public sector is legally limited to select the bidder with the lowest price in the tender process in the vast majority of contracts. The system rewards the bidder with the lowest bid, not necessarily the optimal bid. “

A spokeswoman for the Department of Public Spending said that most of the projects were implemented on time and in accordance with the budget, but “more needs to be done to continue to strengthen and improve processes and frameworks to ensure value for money.” The department said it was strengthening frameworks to support public bodies that bring major projects.

15 road projects: 2.02 billion euros

Data published for the Irish Times describes in detail 15 road projects with a total spending of 2.02 billion euros. That is more than the agreed tender prices, which amounted to 1.75 billion euros, but less than 2.6 billion euros, as submitted by the contractors. The average difference between the tender price and the one paid was 15 percent.

The most expensive project in the published data was the Cashel / Mitchelstown project of 245 million euros, which was slightly lower than the tender price. Other projects were well above the agreed tender, such as the Kilbeggan-Moate-Athlone road, which invested € 145 million compared to the € 113 million tender; and the Athlone / Ballinasloe road, which amounted to € 100.1 million compared to € 79.1 million in the tender. The project between Kinnegad and Kilbeggan amounted to 108.8 million euros, and it cost 137 million euros.

For the first phase of the Carlov bypass, 74.9 million euros were offered and it cost 105.4 million euros. The Waterford to Knocktopher Phase 2 project amounted to 136 million euros, compared to 108 million euros agreed in the tender. 165 million euros were offered for Cullahill / Cashel, but it cost 204 million euros. Castletown / Nenagh cost € 170 million compared to the tender agreed at € 141.8 million; while Nenagh / Limerick amounted to 209.5 million euros, and 175 million euros in the tender.

The Tralee bypass was offered for 30.1 million euros, but it cost 35.2 million euros; the Gort-Crusheen bypass cost € 95 million compared to the € 80.1 million tender. The N52 Tullamore bypass cost 41.2 million euros, slightly ahead of the tender price of 39.6 million euros. Kilcullen to Carlow (Phase 3) cost € 111.3 million compared to a € 107 million tender. Carlov to Knocktopher (phase 4) was among the most expensive projects with 222.5 million euros, but only slightly ahead of its tender price of 217.2 million euros. The Mitchellstown-Fermoi project, with 62.9m euros, was similarly marginal before the tender, which stood at 61.6m euros.

Overall, road projects went into the budget, as the total construction budget – which includes contingencies and is only published collectively – was 2.3 billion euros.

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