Construction projects in Ireland are impacted by a wide range of statutory requirements depending on the nature of the project and the stakeholders involved. There are, however, a number of sector-specific requirements which impact the majority of construction projects.
At the time of writing, the Supreme Court has just declared the Electrical SEO to be unconstitutional (National Electrical Contractors of Ireland v The Labour Court & Ors  No 280 JR) and has remitted the matter to the Labour Court.
This legislation can be found at: http://www.irishstatutebook.ie/. It should also be noted that Ireland is a common law jurisdiction so common law principles and case law will generally apply to Irish construction projects.
There are a number of standard form contracts in use in the Irish market.
While standard form design appointments exist, they are not as widely used in the private sector, where bespoke forms are more common. Such standard form design appointments include:
For public sector works, the standard form consultancy appointments are available at https://constructionprocurement.gov.ie/.
The COVID-19 pandemic has had a significant impact on the Irish construction market with two periods of government-mandated site closures for all but limited "essential" construction works: the first period from 28 March 2020 to 18 May 2020 and the second period from 8 January 2021 to 4 May 2021 (although there has been some earlier reopening of certain elements, such as home building).
The second period of closures has made it difficult to predict the final impact of COVID-19. There is no doubt that claims in relation to COVID-19 will continue to filter through projects over the coming months. The extent of these claims will largely depend on the construction commencement date and the nature of the project – projects which have straddled both closures will be most impacted. In addition to claims covering the actual period of closure, delays caused by compliance with new working practices must also be factored in. As matters become more contentious, there is a concern that contractor insolvency will increase.
The construction sector has also been affected by travel restrictions introduced to combat COVID-19. These restrictions include mandatory quarantine requirements, which will impact on the ability to deploy foreign labour on Irish construction sites and the return of workers who left Ireland during the period of site closures.
Public Works Contracts
For Public Works Contracts, the Office of Government Procurement has issued guidance on how COVID-19-related claims should be dealt with.
No particular legal form is required to act as an employer and employers can vary immensely depending on the nature of the works (eg, the identity of an employer could range from an entity carrying out a one-off construction project to a seasoned property developer). It is common to see developers make use of special purpose vehicles (SPVs) as the employer entity to ring-fence projects and manage risk.
Regardless of the type of entity or the sophistication of an employer, the core obligations of the employer in any construction project will be to pay for the works in accordance with the terms of the building contract and to provide (i) access to the site for the purposes of carrying out the works and (ii) such information as the employer is required to provide in timely manner and in accordance with the building contract.
There is no particular legal form required for contractors in Ireland. A contractor may operate as a registered company, a partnership or as a sole trader. The Construction Industry Federation operates an online register (CIRI) of competent builders, contractors, specialist subcontractors and tradespeople which is available at https://www.ciri.ie/. CIRI is supported by the Irish government but registration is not yet mandatory at the time of writing.
The contractor will be appointed by the employer and will appoint subcontractors. The contractor may also execute a collateral warranty in favour of the employer's funder (or other third parties such as tenants), thus establishing privity of contract with such third parties (see 2.4 The Financiers).
While obligations will vary depending on the nature of the works and the individual contract, the general obligations of a contractor will be (i) to carry out and complete the works using all proper skill and care in a good and workmanlike manner and (ii) to ensure that any materials supplied by the contractor are also reasonably fit for the purpose for which they are used and of good quality.
The contractor's responsibility for the design of the works (and whether or not it will appoint the design team) will be dependent on the procurement model utilised for the particular project. Where the contractor is responsible for the design of the works, it will have a duty to take reasonable skill and care.
As with contractors, subcontractors may operate as a registered company, a partnership or as a sole trader and may opt to register with CIRI, although this is not mandatory.
Typically, subcontractors are appointed directly by the contractor and the contractor will be solely responsible for the activities of the subcontractor (see 3.4 Construction). A contractor will usually seek to go "back to back" on its contractual arrangements with the subcontractor, such that the subcontractor's obligations will mirror all the obligations the contractor has to the employer in respect of the particular subcontractor package. The subcontractor may also be required to execute a collateral warranty in favour of the employer's funder (or other third parties), thus establishing privity of contract with such funder (see 2.4 The Financiers).
Irish construction projects are financed by a wide variety of entities including institutional banks, investment funds, alternative lenders and private equity firms.
As mentioned in 2.1 The Employer, the funders of a construction project will tend to have a relationship with the employer as borrower (or as one of a number of borrowers). Where the employer is not the borrower, the borrower will typically put a development agreement in place with the employer and the employer will provide a collateral warranty to the funder. The collateral warranty creates privity of contract between the funder and the employer and will essentially provide that the employer owes the same duties to the funder as it owes to the borrower under the development agreement. It is also usual for funders to enter into collateral warranties with the contractor, key subcontractors or designers. The collateral warranty (which can also take the form of a Duty of Care Deed or a Direct Agreement) will usually also provide rights of step-in to the funders.
The funding agreement will also typically provide for the funder to take a security assignment over the "development documents" which will usually include the building contract and design appointments, etc.
In addition, the building contract will usually provide rights of access and right to information for the funder's monitor. The extent of information and access required will depend on the terms of the funding agreement between the funder and the borrower/employer.
The scope of the works will be set out in a number of documents which will be appended to the building contract and form part of the "contract documents". These will include some or all of the following:
The building contract will typically provide for an order of precedence in circumstances where there is any ambiguity between the contract documents.
Whether the programme (setting out the sequence and duration of the works which must be carried out from commencement to completion) is a contract document will depend on the contract itself. Under the Irish RIAI form of contract, the programme is not a contract document (see 5.1 Planning).
Variations (whether requested by the employer or the contractor) are typically priced in accordance with the rates set out in the bill of quantities (BOQ) for the works or where there is no BOQ, in accordance with the schedule of rates submitted by the contractor.
If the variation is not of a similar character or executed under similar conditions as the work to which such rates apply, then the following commonly applies (although it will depend on the contract):
If neither of the above methods is suitable for valuing the variation, the contract administrator will value it in accordance with "daywork" rates, which are based on the actual cost of labour and materials plus an allowance for overheads, etc.
Responsibility for design depends on the method of project procurement. In Ireland, a number of methods of project procurement are utilised but the main methods are (i) traditional "build only" and (ii) design and build.
In the traditional model, the employer separately engages the design consultants to prepare the design. There are separate lines of responsibility for design and construction and the employer has a direct but separate contractual relationship with the design team and the contractor.
It is worth noting that even where the traditional model is utilised, it is common for the contractor to retain design responsibility for specialist subcontractors carrying out design. The employer is also likely to obtain a collateral warranty from such specialist subcontractor but this is separate and in addition to the contractor's primary responsibility for such subcontractors.
Under a design-and-build model, the contractor takes on responsibility for both the design and construction of the works. Where design consultants are appointed by the employer before the contractor is selected, the employer will transfer (or novate) such appointments to the main contractor with effect that sole responsibility for design (as well as workmanship) rests with the contractor.
The contractor is responsible for the construction of the works including works carried out by subcontractors. Traditionally, where the employer nominated a particular subcontractor, the employer would retain responsibility for the design carried out by such subcontractor. However, there has been a move away from the "nominated" subcontractor structure in the past decade or so and it is typical for all subcontractors to be treated as domestic to the contractor. Notwithstanding the contractor's responsibility for subcontractors, the employer may also seek a collateral warranty from particular key subcontractors (particularly subcontractors carrying out design) as an extra layer of protection.
The contractor will take possession (on an exclusive or non-exclusive basis depending on the contract) on the date set out in the building contract. Save for any carve-outs in respect of independent contractors, etc, the contractor will be responsible for the works and the site (including site security and access routes) from the date of commencement until the date of completion.
Depending on the nature of the project, it is common for environmental and archaeological issues to be investigated at planning stage and any planning permission may attach conditions in this regard. Many major development projects are required to carry out an environmental impact assessment (EIA) as part of the planning process in any event and separate environmental permits may be required. Responsibility for managing such risks will then typically be dealt with in the building contract but it is important to note that even where some risks are allocated to the contractor, under environmental law, the employer may still have legal responsibility (eg, as owner of the land).
In case of unforeseen ground conditions, which are not dealt with by the contract, the contractual risk will typically lie with the contractor.
While the permits required for a construction project will depend on the nature and extent of that project (eg, waste licences, environmental permits, etc), the following permits/certificates are generally required.
Responsibility for general maintenance of the works following practical completion (unless the issue relates to snagging or the making good of defects by the contractor during the defects liability period) will usually be the responsibility of the employer, unless the building contract states otherwise.
Where the employer requires the contractor to continue to have an operations and maintenance role post-completion of the works, the parties will usually enter into a separate O&M agreement. (For public contracts and PPPs, see 3.8 Other Functions.)
As stated above, the functions of the contractor will largely depend on the nature and extent of the works.
Models which include operation, maintain and finance, eg, design-build-operate (DBO), design-build-finance-maintain (DBFM), and design-build-finance-operate-maintain (DBFOM) are commonly utilised in Ireland for PPPs (public-private partnerships) for the construction of state infrastructure.
Whether or not testing is required for completion will depend on the nature of the works being carried out and on the individual contract. Requirements for testing or commissioning are more likely where the works include significant mechanical and electrical works and/or where lifts, instrumentation and equipment are being installed. Large-scale energy projects, data centres and automated warehousing projects are examples of projects where testing would typically arise as a prerequisite to completion. It is common for the contractor to bear the cost of re-testing, if there are any failures in the initial testing.
The contractor will typically hand over the works to the employer at "practical completion" (or "substantial completion") upon certification by the contract administrator that the works are practically complete. The requirements for achieving practical completion will be defined in the individual building contract and may vary depending on the nature of the works (ie, certain testing or commissioning may be required before completion). Practical completion can occur in phases. The employer will then take over and become responsible for the work. Following practical completion, the defects liability period will then commence. See 3.11 Defects and Defects Liability Period.
Following practical completion, the contractor will typically be required to return to the works and "make good" any defects which arise for a particular period, usually 12–18 months. This is known as the defects liability period. At the end of this period, the final retained payment will be made to the contractor. However, the employer will still be entitled to bring proceedings against the contractor for breach of contract for a defect in workmanship and/or design (if relevant) for a period of 12 years (if the building contract is executed as a deed and does not contain any explicit limitation period) or six years (where the building contract is not a deed and no other limitation period is relevant) from the date of breach as per the Statute of Limitations 1957 (as amended) which is available at http://www.irishstatutebook.ie/. The date of breach is typically taken as the date of practical completion.
For design appointments, the time limits set out above also apply, although it is more common for design appointments to include temporal limits of liability so that the 12-year time limit applies less often.
A separate claim in tort for negligence may also be made for a period of six years from the date the cause of action accrued.
The contract price will vary depending on the contract, calculated according to a wide variety of methods, including the following:
Contractors are typically paid on an interim payment basis – usually monthly. The Construction Contracts Act 2013 provides for minimum payment terms for subcontracts, which also apply to main contracts where the payment terms do not meet certain mandatory criteria. Where advance design work is required or the contractor needs to procure long-lead items, an advance payment may be sought. The employer may seek an advance payment bond where significant funds are being paid in advance.
A contractual right to suspend for non-payment is typically in Irish building contracts, culminating in the right to terminate if non-payment continues (see further in 9.1 Remedies). The Construction Contracts Act also provides for a right of suspension in the event of non-payment. The right to suspend should only be exercised in clear cases of non-payment with regard to any entitlement of the employer to set off or hold back monies in respect of any counterclaim for defects, etc.
The procedure for payment and method of invoicing depend on the terms of the individual contract. However, it is usual for the process to commence with the submission by the contractor of a detailed progress statement to the contract administrator (together with such back-up documentation as may be appropriate in line with the building contract). The contract administrator will then issue a certificate of the amount due to the contractor. This certificate must then be honoured by the employer within the time period set out in the contract.
As set out in 3.1 Scope, how the programme for carrying out the construction works is managed will depend on the building contract. The contractor will usually be required to submit a programme at commencement of the works which will then be updated and reissued by the contractor at agreed intervals as the project progresses. As such, the programme is not usually binding and can be subject to change, provided the completion date is met, but is usually required to assist with monitoring progress.
In the event of a delay, the contractor will typically be required to give notice to the contract administrator and the contract administrator will determine whether an extension of time is allowable under the contract. Parties may also require that the contractor provide such notice within a specified time period as a condition precedent to recovery, and that any entitlement will be lost if notice is not given within the requisite period.
The contractor may also be entitled to delay costs under the contract. Where this is the case, notice of such entitlement will usually be required within a specific time period and such notice may be expressed as a condition precedent to recovery.
Where the contractor fails to meet the completion date set out in the contract, it is standard for the employer to be entitled to liquidated damages as set out in the contract (usually expressed as a set figure per week or part thereof, although it can be expressed on a per-day basis).
See 5.2 Delays.
Force majeure is not always a defined term in Irish building contracts. Where it is specifically defined, the definition will typically require that the event claimed to be a force majeure event must be exceptional and something that could not have been provided for by the parties. The definition will also typically include a non-exhaustive list of circumstances, including events such as acts of God, war, rebellion, terrorism, revolution, exceptionally adverse weather conditions, natural catastrophe, etc. It is possible to exclude certain events and it is common now to see COVID-19 explicitly excluded in force majeure provisions and dealt with separately in another part of the contract.
A force majeure event will typically entitle the contractor to an extension of time.
Whether or not a contract provides for "unforeseen circumstances", as distinct from force majeure, will depend on the individual contract.
Parties may also be able to avail of the common law remedy of "frustration" to avoid the contract, but "frustration" is typically more difficult to prove and applies to a narrower set of circumstances than force majeure.
The market standard position is that liability for death and personal injury cannot be contractually excluded in construction contracts. Unlike the UK, specific legislation in Ireland barring such exclusions relates only to consumer contracts but the general consensus is that any such exclusions would be difficult to enforce and are therefore generally treated as prohibited.
Traditionally, the concepts of gross negligence and wilful misconduct were thought to have no formal meaning under Irish law. "Wilful act" and "gross negligence" were considered by the Irish Supreme Court in ICDL GCC Foundation FZ–LLC v European Computer Driving Licence Foundation Ltd  IESC 55, which confirmed that the meaning of the words depends on the context used, and how the particular contractual provision is interpreted.
It is usual for parties to seek to limit liability under both building contracts and design appointments and, when negotiating, it is common for some or all of the following limitations to be sought (although not necessarily agreed):
It is usual for the contractor and design consultants to provide an indemnity to the employer in respect of damage to third-party property, personal injury and death caused by the act or default of the contractor or relevant consultant.
Depending on the individual building contract, a contractor may also provide an indemnity to the employer in respect of any loss or damage arising out of its breach of particular obligations relating to the environment, nuisance, disruption to existing services, anti-bribery and corruption.
Depending on the scope and complexity of the works, it is usual for an employer to seek a performance bond from an independent surety guaranteeing the performance of the contractor up to a certain value. The performance bond will usually decrease in value on practical completion and will expire completely on a particular date (usually linked to the defects liability period under the contract). Bonding at subcontractor level is also becoming more common on larger projects.
The employer may also seek a parent company guarantee from the contractor's parent but that is less common.
For the contractor's part, a parent company guarantee may be sought to protect payment, particularly when the employer entity is an SPV.
The following insurances are usual on Irish construction projects.
Depending on the nature of the project, other insurances may also come into play.
It is usual for insolvency to trigger a right to terminate the construction contract for the non-insolvent parties. The entitlements upon such termination will vary depending on the individual project.
Risk sharing is dependent on the building contract itself and where particular risks carry a delay and cost risk, one party may agree to take the time risk while the other party takes the cost risk (ie, the contractor will be entitled to an extension of time but not any damages for such delay). The parties are free to agree to share certain risks and COVID-19 has seen many parties opt to share the risk of COVID-19-related events.
Foreman or Site Manager
Construction contracts vary according to the nature and extent of specific personnel required for the project. It is standard, however, for a contractor's representative (also called a foreman or site manager) to be identified. This representative will be present on site and authorised to supervise the works and receive instructions given by the employer.
Construction contracts in Ireland also commonly identify a safety officer with responsibility for health and safety on site. In the wake of COVID-19, this safety officer or another separately identified person may also be responsible for monitoring compliance with COVID-19 requirements on site.
PSCS and PSDP
Separate to any contractual requirements, the Safety, Health and Welfare at Work (Construction) Regulations 2013 require the appointment of a project supervisor for the construction stage (PSCS) and a project supervisor for the design process (PSDP) where a construction project meets certain criteria. The contractor is often, but not always, appointed as PSCS.
There is no general restriction on subcontracting in Ireland. Each particular building contract will regulate the extent of subcontracting allowed and/or the level of consent required. For design appointments, the ability to engage subconsultants will usually require consent.
It is standard in the market that any copyright and IP remains with the party who created it. The employer will usually seek an irrevocable, royalty-free licence (including the right to grant sub-licences) to reproduce, copy and use any IP produced by or on behalf of the contractor and/or design consultant in connection with the relevant works, for all purposes connected with such works. Collateral warranties provided in favour of funders or other parties by a contractor or a design consultant will usually contain a similar licence.
The main remedy for parties to a construction contract is a claim for damages due to breach of contract.
Whether a particular breach will give rise to a termination right, will depend on the wording of the contract. Typically, the employer will have broader termination rights which may include the right to terminate for "serious" or "material" breach. The contractor's or consultant's right to terminate is more likely to be restricted to failure to make payment or insolvency.
Where the contractor is in breach of its obligation to complete the works by a certain date, the employer is usually entitled to liquidated damages (see5.3 Remedies in the Event of Delays and 9.3 Sole Remedy Clauses).
See 6.3 Limitation of Liability.
It is standard for liquidated and ascertained damages (LADs) for delay to be included in Irish building contracts. While LADs provisions often do not explicitly provide that LADs are to be the sole remedy for delay, it is generally understood, in line with the English law position, that they are.
It is not uncommon for parties to seek to exclude liability for indirect and consequential losses. Where such exclusion is agreed, it is usually on a mutual basis.
It is standard to provide for retention in Irish building contracts. Retention can vary depending on the nature of the works but typically between 3–5% is retained from payments during the course of the works. It is usual for one half of the retention monies to be refunded to the contractor at practical completion with the remainder held until the end of the defects liability period (usually 12–18 months post practical completion). The full value of the retention may be returned at practical completion where the contractor gives a retention bond. Although a retention bond is provided for in the RIAI standard form of contract, it is not common in the market.
Suspension by the Contractor
Building contracts typically provide a right of suspension for non-payment. Under the RIAI standard form of contract, the contractor is entitled to suspend for non-payment (after five working days' notice to the employer) for a period of ten working days, following which, the contractor is entitled to terminate.
The Construction Contracts Act 2013 also provides for suspension of works for non-payment. While this is a very powerful tool where payment is not flowing down as it should, it should only be utilised in very clear cases of non-payment. This is because an unjustified suspension will leave the suspending party liable for delay and open to a claim for compensation and damages for any loss caused by the suspension.
Suspension by the Employer
While a general right for the employer to suspend works is not provided for in the RIAI standard form of contract, it is not unusual for such a right to be included by way of amendment. Typically, such an amendment will allow the employer to suspend works by way of project manager instruction with no right for the contractor to terminate until a certain amount of time has elapsed.
Except for where the construction contract says otherwise, parties to a construction contract in Ireland will have a right to refer matters to the Irish courts (the particular court to which the matter is referred will depend on the value of the claim). For proceedings issued in the Irish High Court, there is an option to transfer the matter to the commercial court provided certain requirements are met. The commercial court provides a fast-track, case-managed forum and can be attractive for larger construction disputes.
Statutory adjudication under the Construction Contracts Act 2013 provides parties with a statutory right to refer disputes relating to payment to adjudication, and issuing proceedings in the High Court or any other forum will not interfere with this right.
ADR is very popular in the construction sector in Ireland with mediation, conciliation, expert determination and arbitration featuring heavily.
It is common for building contracts and design appointments to contain a two or three-tier dispute resolution process with senior management negotiation, mediation and/or conciliation included as prior steps before the dispute is referred to a final forum for dispute resolution.
Arbitration features heavily in Irish construction contracts as the forum of final dispute resolution.
A number of professional industry bodies, such as Engineers Ireland and the RIAI, provide their own conciliation and mediation procedures, which can be utilised by parties seeking to resolve matters by these mechanisms. These professional bodies also have panels of mediators, adjudicators and arbitrators to which parties can refer matters.
While the conduct of ADR remains largely at the discretion of the parties and the procedure set out in the contract, the following legislation is relevant:
For more on these Acts, go to http://www.irishstatutebook.ie/.
For public sector works, disputes are resolved by conciliation followed by arbitration.
Joshua Dawson House
Dublin 2, D02 RY95
+353 1 582 8100
+353 1 582 8197www.dentons.com
The outlook for the construction sector in Ireland was generally positive in January 2020 with significant investment being made in both the public and private sector and an expectation that this was to continue for some time. While labour shortages and construction cost inflation were a cause for concern, overall the sector was in good shape.
Over the last 12 months, the impact of COVID-19 has been felt in many ways, from the practicalities of dealing with construction site closures and managing COVID-19 risk on sites through to the reassessment of growth sectors in the short to medium term. Outside of COVID-19, there have also been a number of legislative and case law developments and Brexit has taken effect.
Post COVID-19, the immediate challenge will be for the construction sector to get back on its feet to take advantage of the numerous opportunities which remain – including in the residential (notably build-to-rent and social housing), logistics and state infrastructure sectors.
The Impact of COVID-19
COVID-19 has been particularly disruptive to the Irish construction industry with two government-mandated periods of shutdown for all construction sites (with limited exceptions for essential construction works). The first period from late March to mid-May 2020 and the second period from January to May 2021. Following the first period of closure, requirements were introduced for safe working practices on sites: the Irish government's Work Safely Protocol and the Construction Industry Federation's Standard Operating Procedure. The construction sector has been particularly successful in implementing these requirements, with low levels of COVID-19 transmission linked with construction sites. Notwithstanding this, a second period of mandatory closure took effect on 8 January 2021. While there was some phased reopening, construction sites did not fully open until 4 May 2021.
The extent of the second period of closure has made it difficult to predict the final impact of COVID-19. There is no doubt that claims in relation to the pandemic will continue to filter through projects over the coming months. The extent of these claims will largely depend on the construction commencement date and the nature of the project, with projects which have straddled both closures being most impacted. In addition to claims covering the actual period of closure, delays caused by compliance with new working practices must also be factored in. As matters become more contentious, there is concern that contractor insolvency will increase. Going forward, the attitude of developers and financiers will be key and many questions remain unanswered – will more capital be made available to complete projects which may otherwise run into difficulty and if such capital is made available, what additional requirements in terms of security and covenant strength will be sought.
For Public Works Contracts, the Office of Government Procurement has issued guidance on how COVID-related claims should be dealt with depending on whether such contracts were entered into before or after 14 April 2020. It recommends, inter alia, that unless otherwise provided for in the particular contract, employers should consider making ex gratia payments in respect of certain permissible costs.
The construction sector is also being affected by travel restrictions, introduced to combat COVID-19. At the time of writing, these restrictions include mandatory quarantine requirements and impact the ability to deploy foreign labour on Irish construction sites and to arrange the return of workers who temporarily left Ireland during the period of site closures.
Other Important Legislative and Case Law Developments
The SEO declared unconstitutional
There have been a number of developments this year both legislatively and in the courts. Of particular note is the case of National Electrical Contractors of Ireland v The Labour Court & Ors, where the High Court declared the Sectoral Employment Order (SEO) for the Electrical Contracting Sector to be unconstitutional. This SEO (issued following a recommendation to the relevant minister by the Labour Court) provides for binding terms and conditions in respect of pay and pay-related benefits for workers in the electrical contracting sector and the decision declaring it unconstitutional also undermined the other SEOs which exist in respect of the mechanical sector and the construction sector more generally. The decision was appealed to the Supreme Court which issued judgment on 18 June 2021. The Supreme Court found that while the SEO for the Electrical Contracting Sector was unconstitutional, the underlying legislation itself (on which the other SEOs are based) is not. The Electrical SEO has now been remitted to the Labour Court to provide a further recommendation.
High Court decisions
There have been a number of decisions in the High Court on statutory adjudication, which is legislated under the Construction Contracts Act, 2013 in respect of construction disputes relating to payment.
Despite such judicial support for adjudication, a key criticism over the last 12 months has been the length of time such cases have taken to be heard, which undermines the efficient resolution promised by adjudication. It is hoped that this issue will be resolved by the High Court practice direction issued on 16 April 2021 which creates a specific High Court list to be heard by Justice Simons sitting weekly, for all applications to enforce or enter judgment in respect of an adjudicator's decision.
This year has also seen the impact of Brexit. Unfortunately, due to the second period of site closures, the full effect of the EU-UK Trade and Co-operation Agreement is unclear at the time of writing. There has been some evidence of supply chain issues and this can only be expected to increase as sites resume operation at full capacity. Brexit has also brought changes to compliance with the Construction Products Regulation (the CPR). As UK-registered "notified bodies" no longer have legal status, from 1 January 2021, relevant products must be certified by an EU-27 notified body, in order to comply with the CPR.
Construction Cost Inflation, Labour Shortages
Prior to COVID-19, construction cost inflation and labour shortages were a cause for concern. In particular, there was a shortage of skilled labour and a low level of those taking up apprenticeships. This is raising its head again as the construction sector ramps up to full capacity. Shortages are being exacerbated by the pent-up demand for tradespeople for small projects and COVID-19-related travel restrictions. Recent news reports also suggest that UK projects have been utilising Irish workers during the Irish site closures and these workers may not immediately return.
Construction cost inflation is also an unknown quantity at present. COVID-19 brought a notable slowdown in cost inflation which followed through into early 2021 but this is expected to pick up again as the year progresses. At the time of writing, industry analysts suggest tender price increases of between 2–3% overall for 2021, with higher increases for some raw materials such as steel and timber.
Sectors and Trends to Watch
In common with other countries, the retail and hospitality sectors in Ireland have been badly hit by COVID-19 and the future of offices remains uncertain, but the residential and logistics sectors have held up and are attracting interest from developers and investors. Over the next 12 months, the authors anticipate the following trends.
The supply of housing remains a serious issue in Ireland, particularly in the low-mid range of the market. Politically, there has been a focus on increasing the supply of housing available for owner-occupiers and this has led to the announcement of changes to stamp duty rules and planning legislation in May 2021.
More generally, the various site closures have exasperated the issue of residential supply. However, the market for high-quality investment properties continues to attract the interest of international investors. The sector has also benefited from the recently updated social housing lease structures which have provided institutional investors with a viable fixed-income product, but the long-term viability of such structures is under review as there is political pressure to acquire rather than lease social housing.
As people start returning to the office and as businesses settle on their space requirements, a move towards the reimagining of office space will begin with a focus on fitting out office space to accommodate collaborative spaces and well-being zones. The development of smaller satellite offices may also be a feature and may, in certain areas, benefit from the Irish government rural hub initiatives.
The reports on this sector indicate that Ireland and, in particular, Dublin remain undersupplied on available bed spaces. It is therefore anticipated that developers of various hotel projects which have been delayed by site closures will become active again in the short-to-medium term.
COVID-19 has laid bare the challenges facing the Irish healthcare industry. The nursing home sector in particular has been severely stretched and many existing facilities are likely to embark on significant capital expenditure projects to bring facilities up to date. It is also likely that the various hospital groups will engage in similar projects to increase spare capacity to avoid similar exposure in the future.
In the rest of Europe there has been a drive towards last-mile logistics. Due to population size and location, the demand for that type of space is not high in Ireland. However, as the majority of existing industrial stock is quite dated and no longer fit for purpose, there is an appetite for new-build logistics spaces to accommodate new technologies in this sector. This area has also been impacted by Brexit and we are likely to see new locations emerge for logistics space along the southeast coast, as new sea routes are opened between Rosslare, County Wexford and France and the Netherlands, replacing the previous primary routes between Dublin and the United Kingdom.
There are a number of significant government infrastructure projects in the pipeline. For example, the Dublin Metro project will progress to railway order stage over the next few months and Irish Water (the Irish water utility) will deploy considerable capital during 2021 and beyond in a wide variety of projects including waste-water treatment and systems upgrades. In the renewable energy sector, Ireland continues to roll out its National Energy and Climate Plan, which has already seen the completion of the first Renewable Electricity Support Scheme (RESS) auction in October 2020, with RESS-2 expected to complete in early 2022. While RESS-1 concerned solar and onshore wind projects only, RESS-2 will also include offshore wind projects.
More generally, construction stakeholders will see an increased focus on ESG (environmental, social and governance) over the coming years. Investors will increasingly consider the ESG value of assets as an important factor when considering potential investment. This will impact all stages of the construction process from designing more sustainable, environmentally aware structures through to exercising the highest standards of transparency and governance on sites – anti-bribery and corruption protections, supply chain transparency, worker protection and health and safety will increase in importance in 2021 and beyond. This focus on ESG will also demand increased use of technology in construction, including business information modelling (BIM).
The last 12 months have been extremely challenging for the construction sector in Ireland. These challenges will continue for some time and it will be a number of months before we can begin to assess the long-term impact of COVID-19.
There are, however, reasons to be positive. The construction industry has proved itself remarkably adept at moving quickly and engaging with new working practices, and a new spirit of collaboration between contractors and employers was seen following the first period of site closures. In the short term, it is hoped that this same resilience and collaboration will take the construction industry through the next number of months as it attempts to get back on its feet. In the medium term, there is a significant volume of construction work that is urgently needed in Ireland across a number of sectors, and a wealth of international capital available and willing to support that work. How construction stakeholders manage the next few months will be crucial in determining their ability to take advantage of the upswing in construction activity that is sure to come.
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