The construction sector has welcomed the easing of COVID-19 restrictions since April as sites have fully re-opened across the country. However, despite the surge in activity, the industry now faces new problems in the form of price inflation.
The Irish Times reported in April that the price of materials has been increasing from between 5% to 20% across timber, insulation, plastic piping and other key construction materials. Indeed, an Irish Home Builders Association market survey published in May 2021 was found to be outdated within two months of issue, such was the pace of price inflation. In August, project management company Turner and Townsend reported increases of 35% in the price of some building materials and ongoing complaints from builders and their suppliers that prices for key materials are rising across the board.
The increase in materials prices can be attributed to a number of factors outlined below.
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COVID-19 |
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National issues |
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Global demand
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Brexit |
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Blockage of Suez Canal |
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From a legal perspective, as the price of construction materials continues to soar, parties to construction contracts or who are in the process of negotiating such contracts are becoming more focused on who should bear the risk of such cost increases.
The Royal Institute of Architects Ireland standard form contract places the risk of price inflation for materials on the employer under clause 36 (although for larger projects this position is often reversed, with the contractor shouldering the risk). Going forward, if the cost of materials continues to soar, developers and contractors should consider at the earliest opportunity how the risk of price inflation for materials and labour can be best managed and also how it will be allocated under the construction contract.
For further information on this topic, please contact Siobhan Kearney, Senior Associate or any member of A&L Goodbody’s Construction & Engineering team.