Hayes welcomes move to address ‘crippling’ construction sector insurance costs

Minister of State Brian Hayes today (01-May-2013) welcomed the easing of insurance restrictions on the awarding of public works contracts.  Public works contracts are estimated to be worth in the region of €2.25 billion annually.  The lowering of this burden on contractors is in response to increasing delays in the awarding of contracts, and in turn in delivering urgently needed capital investment projects.  Commenting on this Minister Hayes noted.

“We simply can’t have a situation where red tape is blocking much needed investment, particularly where job rich investment is in short supply.  Government is committed to improving the quality of spending across the board by channelling it to where it will have most impact.  Today’s reduction in Performance Bond levels is a sensible and pragmatic reform.  It reflects the need to bring stability to a Construction sector that has seen its share of economic activity plummet from an unsustainable peak of 20% of GDP to a moribund 6% today.  We must return this sector to the more sustainable level of 11%-12% that applies in other developed economies.”

The Department of Public Expenditure & Reform Circular containing the new guidelines has been provided to all public contracting authorities and has immediate effect.  Interim measures are provided for recently advertised and on-going tender competitions.

The decision to reduce the level of Performance Bond cover has been informed by available evidence, extensive stakeholder consultation, and by changed market conditions where insurance premiums have increased four- and fivefold since the collapse of the construction industry.

The overhauling of the current Bond levels, which date back to before 2007, will see levels brought into line with those applying in the UK, and which apply to the awarding of Public-Private Partnership contracts – both in the region of 10% of the contract sum.  Public works contracts below €10 million will see previous levels of between 15% to 25% reduced to 12.5%, while contracts above €10 million are to be reduced from 12.5% to 10%.

“Assisting the construction sector to return to normal activity levels is essential to our economic recovery.  The good progress we have made dealing with our debt burden must be matched by sustainable domestic growth and job creation.  In this context public works contracts – like the recently announced funding from the European Investment Bank and the first Action Plan for Jobs – must adopt a robust approach to boost this sector and the much needed jobs and economic activity this will deliver.”

The impact of these reductions in insurance requirement levels will be closely monitored over the next 18 months, and will be accompanied by the introduction of more rigorous risk assessment guidelines generally applicable at project appraisal stage.