As the data centre sector comes of age, Joe McCaffrey – a mechanical and electrical specialist at construction consultants Duke McCaffrey – explores how lessons from the past can promote a prosperous future…Continue reading
We are delighted to have been appointed to Jackie Greene Construction’s new home development at Elanora Court.
Elanora Court is a Residential Development at Long Mile Road in Dublin. Just under 1ha, the new development will create 153 new homes consisting of 1, 2 and 3 bed apartments and duplex units.
A fabulous contractor and client which prides itself on quality in delivery. The development is another step in the right direction for Dublin’s housing model!
With the strictest lockdown level in Europe, Ireland’s construction sector has been calling out for the government to sustain activity – it was a critical decision to keep construction open during the pandemic.
From the budget it is clear our leaders now know that together, COVID and Brexit will have a dramatic impact on Ireland’s ability to keep our head above water. Therefore, the injection of significant funds for our infrastructure targets is welcomed by all and long overdue in many cases.
Never before has the role of the Quantity Surveyor been more important – from controlling costs to handling COVID claims, and taking a responsible approach to procuring our construction supply chains for what is set to be large levels of construction output in the backdrop of restrictions and the inherent challenges with delivery.
Cost and stability are going to be one of the key factors that procuring bodies, the developers and investors will have to consider. It is a time for real leadership within the Quantity Surveying profession, where we take hold of the challenges and guide clients, architects and contractors through the process of construction smoothly and securely.
Avoidance of wholescale default and liquidations within the property and construction industry is important so not to replicate the post 2008 situation. Ensuring our professional teams are de-risking projects for clients and funders, and maintaining pace is key to keeping the industry oxygenated. Therefore, here are our recommendations for both the public and private expenditure roadmap ahead.
1. Mitigate risk at every level, where cash is king, and costs are controlled.
Make sure you put in place risk mitigation plans to protect your projects and your business. In our experience cost of materials are rising fast, labour is scarce, and equipment is hard to get. Traditionally clients passed all the cost risk to the contractors, however, this is challenging in the current environment. Contractors are less willing and need higher premiums to absorb that risk. Clients and contractors should make good solid plans, share risk and agree sensible strategies to review progress during the project, with clear perimeters on how to deal with matters arising. In particular, the risk profile in public procurement needs to be reviewed and appropriate risk transfer must be implemented – risk transfer in one direction only is not working and will not work going forward if the ambitious infrastructure targets are to be achieved.
2. Ensure you procure stable contractors and consultants in your supply chain.
As procurement experts we know from our experience that c. 20% of projects fail or suffer serious issues because they did not have the right protection in place or have not done the right due diligence. Your selection criteria must contain a good balance of price, quality and suitability criteria. We know selecting the lowest tender is not necessarily the best decision for a project and, more often than not, lowest tender equals higher ultimate cost to the client. This is a key consideration in the current situation, where some contractors are pursuing a process of filling their order books no matter the cost. This is then feeding into the supply chain and placing excessive pressure on an already stretched sector to follow the lead of the main contracting organisations despite the ongoing upward pressure on base costs and overheads.
3. Quality and price – at what cost?
Whilst the viability of building new projects, particularly housing is causing some problems, let’s build quality for new homes, schools and hospitals that don’t have to cost the earth. Let’s take the lessons learned from the past and implement those into project strategies going forward. Following the Priory Hall matter, the government seriously reviewed building regulations, let’s review them again to ensure they are fit for purpose and look at ways to fast track bottlenecks.
We must look at the success of Strategic Housing Development (SHD) plans and replicate that for smaller schemes. Through SHDs government gave larger schemes priority, and it was a good decision as we now have lots of examples. Maybe now is the time to consider fast tracking small and medium size residential schemes? There needs to be a mechanism to encourage development of these schemes, in particular where viability can be on a knife edge and planning delays and changes can make schemes undeliverable.
Design quality and performance must take precedent. More haste less speed and lower price can result in significant claims – from poor performance to buildings being demolished because the quality of construction deemed buildings unsafe.
We also need to consider trends in both working and residential accommodation. Working from home (WFH) has become the new way of working and residential developments must recognise and adapt to this need. The ongoing concerns being voiced about Co-Living developments, for example do not seem to recognise how such schemes can encourage and develop appropriate social interaction opportunities during these WFH phases. The obvious mental health benefits that such interaction brings is only really starting to be realised and appreciated. So let’s also think ahead.
Out of the greatest challenges the world has faced together comes great hope and opportunity. This budget is a very clear support from the government to ensure our nation in Ireland maintains a healthy economy in a pandemic. We have great companies in Ireland with healthier balance sheets than in 2008 and those that have robust risk management plans will be in a good place to meet the demands of our infrastructure needs. It is time to keep our people safe and our economy alive and this budget has the ingredients to support that through construction.
In recent months, with all the challenges facing our people and economy, we used the time wisely and we took the opportunity to reshape our team to build a business that goes beyond COVID-19 – providing for a long and successful future.
We are exceptionally pleased with the recent appointments including Ronan McGee appointed as Director of Cost Management, Mark Kirwan as Associate Director of Cost Management, Ian Kelleher appointed as Associate Director of Project Management and Beatriz Moreira as Business Finance Manager.
We also made some management structure changes to develop the business as we enter another period of growth, including Joseph McCaffrey, who has now stepped up as Managing Director, Kevin Duke as Consultant and Rebecca Coffey as Bid and Marketing Manager.
We warmly congratulate all the newly promoted team and we are firmly believe we have one of the strongest construction consultancy businesses in the Irish market – an independent, flexible and focussed firm.
As cost consultants and experts in residential, we have seen an increase in new build apartments which aligns with the changing household model in Ireland. For many in our sector, there continues to be a call for change to support this reshaping of the traditional model but also to find new ways of providing affordable homes. This is a must if we are going to address the growing housing crisis.
Obviously the opportunity for growth in residential is driven by viability and affordability and as the average household income is documented to be below €50,000, this is making it a real challenge for many to afford a home and provide the demand that developers are looking for. One of the clear incentives for developers when building new homes is whether there is substantial market demand, and with over 50% of the underlying costs in bricks and mortar (a new build three-bed semi upwards of €350,000), it is becoming a challenge to achieve viability for both the developer and buyer.
What can we do to address this issue of potential demand?
To support our piece, we refer to a recent report commissioned by the property body, Irish Institutional Property (IIP), centred around the need change in providing suitable housing. Ronan Lyons, the author of the study, made a statement on what is next for residential; ‘we need to provide appropriate housing for the change in population, net migration and build new homes which meet the trend of smaller households’. In Lyons opinion, Ireland is out of sync with the apartment culture of other European countries which have latched onto this trend, where typically 50% of dwellings are apartments. And whilst there is encouraging evidence to show that the country’s drive to design and build more housing is present in the latest PMI results, it is important not to rest on our laurels and as an industry take charge to maintain momentum.*[https://www.theconstructionindex.co.uk/news/view/irish-construction-bounces-back].
*The PMI index this month showed a significant increase for construction output as a whole, with the residential sector gaining significant traction as its output rose from 21.4 in May to a ten month high of 55.8 in June.
With many years of providing for new homes, there are three immediate strategies to put in place to bring to market affordable, viable and practical homes:
1. Provide more affordable homes
As previously mentioned, the average household income in Ireland makes it impossible to afford a home for many, particularly when the hard costs of construction is on the rise. Like the adoption of the apartment model Ireland is behind on the concept of shared ownership. We must create the demand by providing more affordable homes and affordable way for first time buyers to get on the ladder. Many industry leaders, such as AIB, have called for shared ownership, see this article in the Irish Times [https://www.irishtimes.com/business/financial-services/aib-calls-for-new-scheme-to-allow-shared-ownership-of-homes-1.4170666]
2. Modular solutions can provide so much more
Over the past year Europe has stepped up its commitment to investing in environmental led projects and Ireland has more steps to take to meet our own targets of cutting emissions by 51% by 2030. This together with the need to provide more homes quickly means we need to look at a new construction model. Take a flashback to 2016, where the social housing waiting list in Dublin was at 45,000, the Independent covered a piece on featuring the benefits of a low cost build, one which could benefit tens of thousands looking for affordable home. [https://www.independent.ie/life/home-garden/homes/real-deal-modular-housing-shows-the-cost-of-construction-34652295.html]. It has been proven that affordability can be achieved through modular solutions, however speed is also of the essence. With the latest reports showing that the low target numbers of 25,000 new homes a year (Project Ireland 2040 plan) already out of date, there is a real need to build circa 50,000 homes a year to address the housing crisis. This cannot be achieved without four fundamental contributors: labour, cost, viability and an increase in household income.
Currently the average construction cost for an apartment in Ireland is upwards of €180 per sqft, and for a new urban home €250+ per sqft. If we are on track to meet the new increased demand at circa 50,000 homes per year, there must be a significant shift in mindset and housing model. This modular solution combined with the provision of shared ownership, almost provides the perfect solution.
3. Keep construction costs affordable & protect our construction growth
Our next big challenge is to invest in skills, talent, and local labour.
Investing in our construction sector to reduce costs, needs to consider the cost benefits of local labour and home-grown skills. In a strategy report by DKM Consultants just four years ago, it showed that the Irish construction industry as expected to grow on average by 9% per year and warned about the potential skills shortage [https://cif.ie/2016/10/26/construction-industry-can-potentially-generate-112000-jobs-by-2020/]. This is not unique to Ireland: it is a global problem. However, in line with our own objectives and the Government’s €43billion Capital Programme, the Rebuilding Ireland Strategy results in a critical need to continue to invest in local talent to avoid the costly importing of labour.
Protecting our supply chains to reduce costs
Construction affordability is also dependent on the supply chain from materials to labour. Covid-19 was a shock to all of us, and no-one could have predicted the scale of impact that it has had on the global economy, but catastrophes like this are an all common risk to our sector as globalisation, imports and exports are business as usual for Ireland.
In our view, this is likely to be the most significant risk to the construction sector – solvent and financial stable suppliers, cost of materials and import tariffs – we have not even touched Brexit trade agreements. Noted by the CIF, 97% of construction businesses in Ireland are made up of less than 10 people. This together with the potential rise of insolvencies and rising costs for material imports from other nations, is a real concern. As the construction sector makes up circa 15% of GDP, this in turn creates its own vicious circle for the economy. Whilst this uncertain phase continues, the government must continue to support this lifeline of the construction sector.
Adding value for investors and developers
The residential sector is one of our most diverse. At Duke McCaffrey, we work on projects which range from facilities for the homeless to complex Georgian and historic building renovations. We also work on a range of student living accommodation and new build apartment blocks. We work with Ireland’s leading housebuilders, developers, investors and main contractors and our expert team have a passion for housing provision in Ireland. We know how to get the best value for our clients to ensure residents have quality approved places to live is a standard that we consistently achieve.
Should you need support on your next residential development, we come with the skills, knowledge, and passion to help you achieve your feasible and viable schemes – from investors to developers and housing associations.
In a new research piece from Synergy Research Group it is predicted that global hyperscaler data centres will increase to 541 at the end of the second quarter. This is more than double the mid-2015 count.Continue reading
12 months from now, Ireland’s construction supply chain landscape could look very different. SMEs are likely to be the most severely hit by COVID19, suffering from cashflow challenges, reduced productivity and labour shortages.Continue reading
The two-week lockdown, announced by Taoiseach Leo Varadkar, means that only construction sites that are critical to stopping the spread of coronavirus are to continue operating. We explore what this means for our clients and their construction contracts already in place.
“Already we are being contacted by our developer clients and contract administrators indicating that they will seek legal advice on extension of time and rights within their existing construction contracts due to levels of confusion and uncertainty over who is responsible for what.” states Kevin Duke, Director and dispute resolution expert at Duke McCaffrey.
Government has now provided clear guidance on “List of essential service providers under new public health guidelines” [https://www.gov.ie/en/publication/dfeb8f-list-of-essential-service-providers-under-new-public-health-guidelin/] which includes services in the following areas of construction:
- essential health and related projects relevant to the COVID-19 crisis, and supplies necessary for such projects
- repair/construction of critical road and utility infrastructure
- delivery of emergency services to businesses and homes on an emergency call-out basis in areas such as electrical, plumbing, glazing and roofing
As well as investors, developers and contractors, landlords and tenants of pre-let premises will also be adversely affected by uncertainty. Similarly, many designers and consultants are also being asked to ramp down their services during this period. At this time of state emergency, it is crucial that that all parties to construction projects review the terms of their contracts to understand their rights and obligations. Difficulties arise though as contracts may not address the issues now at play or may address certain of the issues depending upon the interpretation applied to the contractual provisions.
With all of this uncertainty, Duke McCaffrey and construction law experts, Dillon Eustace have teamed up to provide some guidance on what to consider when reviewing your existing contracts. You can see the full Dillon Eustace briefing here [https://www.dilloneustace.com/legal-updates/construction-contracts-covid-19-impacts-and-considerations].
“Without proper guidance from Government, it is difficult for contractors. There is a lot of confusion. We are seeing Contract Managers notifying clients that works will stop, without any real clarity on what this means for the contract obligations and ultimately, who pays for the loss or extension of time. In some instances contractors are asking clients to provide them with the notification, so to relinquish them of any construction disruption responsibility.” says Joe McCaffrey, Duke McCaffrey
Since lockdown, there has been no further guidance from Government on public sector contracts and whilst the note laid out on 19th March is helpful, there are still some shades of grey. Updated dated guidance from the Government Contracts Committee for Construction (GCCC) is urgently needed.
For private sector clients operating under RIAI or international contracts, our advice is to thoroughly review the details of your contract. Within the RIAI there are important clauses that will need reviewing from the inclusion of Clause 36 dealing with “wage and price variations” to Clause 30 regarding “extension of time”, and Clause 4 relating to “legislative enactments”. These clauses could have adverse consequences on the contractor or the client if obligations are not met.
Fiona O’Neill, Solicitor Dillon Eustace states “Most internationally used construction contracts (for example, FIDIC, NEC, JCT), have specific force majeure protocols. However, there is no standard legal definition of force majeure. As such, the application of force majeure protocols in each contract will depend on interpretation of the precise wording used.”
Fiona continues “The only express reference to force majeure in the RIAI Contract is at Clause 30 under which the Contractor is entitled to seek an extension of time upon the happening of an event giving rise to delay in completing the works due to force majeure. However, the RIAI Contract does not have a specific force majeure definition or clause setting out protocols to apply following the happening of what many would interpret as a force majeure event.”
Finally, as cashflows tighten across the sector, the safety net and provisions of the Construction Contracts Act 2013 which applies to most transactions within the industry, will come to the forefront and the specific notification and terms of this legislation will become very important to note and adhere to.
At this time, we highly recommend that you keep track of Government updates, review your contracts in detail, specifically in relation to clauses that might be relevant to a cessation in construction and think about a collaborative approach in renegotiating contract amendments to find a more commercially acceptable position. You must also take into account that any changes in construction contracts may have a knock on affect to other agreements such as funding arrangements.
Keep comprehensive records of all interactions with your contracting counterparties and take legal advice as and when necessary, including in relation to understanding your contractual obligations and documenting any changes that you agree to your contracts. If not properly documented, further grounds for uncertainty and disputes can arise.
In response to the current COVID-19/Coronavirus situation, we are implementing additional procedures to manage the potential impact and to protect our staff, our clients and the general public from possible infection.Continue reading