The Public Capital Programme figures included in Budget 2020 are estimating an outturn of a 24 percent increase in Exchequer capital spending in 2019 on that spent in 2018. This increase included significant increases in Department of Transport, Tourism and Sport and Department of Housing, Planning and Local Government. The figures included for 2020 are estimating an 11 percent increase with the focus being on the same departments plus increases in Health and Communications, Climate Action and Environment.
Tenders and Contracts
Construction costs are the key driver of tender prices and in this regard labour costs continue to increase. The latest Sectoral Employment Order saw increases in October 2019 of 2.7 percent and a further 2.7 percent due in October 2020. In respect of materials costs increased by approximately 1.5 percent in 2019 and looking forward to 2020 a level of uncertainty exists arising from Brexit with potential tariffs and / or increased logistic costs potentially arising. AECOM anticipate construction cost increases of circa 2.2 percent in 2020.
AECOM projects tender price increases of 5 percent in Dublin and 3.5 percent in the regions in 2020. In respect of construction output, last year we presented a range of scenarios averaging a projected €22.5bn for 2019. We anticipate further growth in the value of construction output in 2020, though at a reduced level of circa 10 percent.
It remains a concern that the headline increases in value of construction output could be significantly taken up by tender price inflation. This will present a real challenge in delivering all on the objectives in Ireland 2040. If tender prices continue to rise, the competitiveness of the industry will be increasingly under ressure. This is probably most evident in the residential sector where the viability of projects continues to be challenging.
There appears to be increasing disquiet in the industry towards public works contracts and their unsuitability for the construction industry of today. Whilst some elements need review, it is important to acknowledge that there are other parts that bring benefits to the management of construction projects. When they were being introduced, there was a widespread expectation that there would be a marked shift in tenders to account for the increased risk being passed to contractors. Of course, the almost simultaneous crash resulted in this not materialising. Over a decade later, some changes to the contracts would be welcome and action is needed to encourage wider participation in public sector contracts.