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 Public Sector Construction Contracts - Bad Value??

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PostSubject: Public Sector Construction Contracts - Bad Value??   Wed May 07, 2008 1:08 pm

The new public sector construction contracts are incredibly weighted in favour of the government allowing very little room for flexibility and putting uninsurable risks on the shoulders of contractors and professionals.

It is understood that the contractors have not started adding the price of the risk into the contracts at this stage as the market is tough in construction. However, it is feared that if one or two projects go wrong then the sh_t will hit the fan as contractors or SPV's go bust or suffer huge losses at the hands of unfair contracts. If the contractor goes bust as a result of having to cover an uninsurable risk then the taxpayer will foot the bill. Also, it is likely that once a few contractors get burnt the price of risk will start to be be factored into new tenders at a premium which will be borne by the taxpayer.

Another fear is that because design professionals are made responsible for the financial consequences of many decisions they will be reluctant to take necessary decisions to spend more money without written approval from the employer (Local Authority/ State Agency). This will lead to delay and to less than optimum solutions being adopted as a result of public sector inertia. This applies in particular where difficult ground conditions are found and quick decisions must be made.

Does anybody have a view whether this is accurate or whether it is pure scare mongering?

Is it the case that these contracts have been brought to with the political aim of saving face by avoiding cost overruns rather than with the civic aim of trying to maximise value for public money?

Is reform of public sector project planning and project management needed? How can this be achieved?


Last edited by Zhou_Enlai on Wed May 07, 2008 1:12 pm; edited 1 time in total (Reason for editing : spelling)
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PostSubject: Re: Public Sector Construction Contracts - Bad Value??   Wed May 07, 2008 1:34 pm

IMHO the public sector often spends several times over what is necessary to deliver a building project. One of the main reasons for this is 'vanity project' overdesigning - there were HSE units for homeless people on RTE news last week - empty because of lack of funding - that had cost per square metre more than twice the cost of high end apartments. The €30 million plus spent on greyhound stadia still sticks in my throat when you look at the needs for school and hospital building.

There is no incentive for the civil servants managing public contracts to get value for money. They get more kudos for running a €30 million project than a €5 million project.

It is not their money and they just don't care.

In my view it should be possible to tender for a fixed price contract even where there are geological risks. The risks should be scoped by the client and the same report provided to all tenderers. Open ended contracts were a disaster: contractors used to tender too low for the work and then come in with extras bigger than the contract sum.

I dealt with a fixed price public contract years ago in which it was made crystal clear to the developer that there could be no extras. The tender documents required the contractor to check ground conditions before pricing. The site involved taking a pipe across land to a river - the land was known to be flood plain. The contractor was slow and inefficient on site and then came back looking for extras for 'difficult ground conditions'. He was not paid over the contract sum.

I haven't read the new contract and will probably have a fit when I do. It sounds like "taking in charge" procedures that were brought in in some counties, which put massive liabilities on engineers or architects who certified works as compliant with planning permission. Most companies just won't certify for this reason and handover of roads and sewers is at a standstill. Local authorities and government seem to have the idea that the development process is some sort of unlimited goldmine that can fund any and all public service costs. With developers again going bust left right and centre they are in for a very rude awakening.
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PostSubject: Re: Public Sector Construction Contracts - Bad Value??   Wed May 07, 2008 3:55 pm

Link to the various contract forms
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