Key Contacts: Angelyn Rowan – Partner | Keri Crossen – Partner | Hugh Cummins – Partner | Laura Mullen – Senior Associate
On 29 March 2023, the Minister for Public Expenditure, National Development Plan Delivery and Reform (the “Minister”) announced a package of actions to enhance the delivery of projects under the National Development Plan (“NDP”).
- Interim Changes to the Public Spending Code: A Guide to Evaluating, Planning and Managing Public Investment (“PSC”) and the Ultimate Replacement of the PSC
The PSC, published in December 2019, is a set of rules and procedures that ensure that public funds are treated with care and that the best possible value for money is obtained whenever public money is spent or invested.
The PSC provided for five (5) stages (three stages were incorporated into the Final Business Case stage) in the project lifecycle prior to implementation – see below illustration from the PSC which outlined these five (5) stages.
(Click on the image to enlarge)
The PSC was updated in November 2021 to introduce an external assurance process for major capital projects in excess of €100m involving independent expert reviews at two different stages in the project lifecycle (at Approval in Principle and Pre-Tender Approval stage).
Circular 06/2023 was published on 29 March 2023 and provides for an update to specific guidelines in the PSC on an interim basis (the “Interim Changes”) (see a summary of the key changes to the PSC below) pending the full replacement of the PSC by a set of Infrastructure Guidelines which are expected to be published shortly. These changes are part of a series of actions aimed at, amongst other things, reducing the administrative burden in delivering major capital projects under the NDP and streamlining the process to be followed to best match the realities of project development.
In respect of the Interim Changes to the PSC, we have summarised some of the key changes below:
- The general threshold for major projects is raised from €100 million to €200 million (thresholds will be reviewed every 3 years) in order to allow projects below this limit to proceed more speedily through the appraisal and evaluation process compared to those above this limit;
- Reduction of the stages in the lifecycle of a project prior to implementation from five (5) stages to three (3) stages (the Preliminary Business Case stage (which now incorporates the Strategic Assessment Report stage), Pre-Tender stage (which now combines the Project Detail Design stage and Tender Documentation stage) and Final Business Case stage) to speed up the appraisal and approval process;
- In respect of major projects:
- Reduction in stages where Government consent required – now required at two stages of the project lifecycle (the Preliminary Business Case stage and the Final Business Case stage);
- The External Review and Major Project Advisory Group review remains a requirement at Preliminary Business Case stage (previously also required at Pre-Tender Approval stage);
- Removal of requirement for Parent Departments/Approving Authorities to seek Government consent or undergo technical reviews at pre-tender stage; and
- Removal of the requirement for the Department of Public Expenditure, NDP Delivery and Reform to conduct a technical review of a major projects proposal at Final Business Case stage prior to contract signing (as above, Government consent is still required at this stage and the Circular provides that the Memorandum to Government seeking such consent should provide a summary of the internal assessment/review carried out and signed off on)
- The changes have effect from 29 of March 2023 and for proposals which are already progressing through the project lifecycle, the updated requirements should be complied with as they move forward, in particular as they reach the next relevant Decision Gate in the project lifecycle.
- See below illustration from Circular 06/2023 which sets out the interim approval requirements and processes for the project lifecycle:
(Click on the image to enlarge)
- Construction Procurement Reform
Revised Guidelines for Professional Indemnity Insurance Levels in Public Works Projects
In response to the significant changes in the cost and availability of professional indemnity insurance, a range of amendments were made to the procurement templates in the Capital Works Management Framework (“CWMF”) (which were summarised in Circular 05/2022 and outlined in further detail in guidance note: GN 1.1.2 (Professional Indemnity Insurance – Application in the CWMF).
On 31 March 2023, additional provisions regarding insurances have been incorporated into the standard conditions of engagement for technical consultancy services (the “COE1”) and archaeological services (the “COE2”) in order to provide the client with an enhanced level of oversight in relation to the insurances required under the contract (to include, amongst other things, the consultant promptly notifying any cancellation, renewal, non-renewal or material reduction or alteration by the insurer of any insurance policies).
Introduction of Financial Liability Cap
Previously, the standard conditions of engagement and public works contracts did not include any provision for a financial cap on the liability of contractors or consultants.
It was noted last year that work was underway on drafting appropriate liability caps on both contractors’ and consultants’ liability (see Circular 05/2022 and guidance note: GN 1.1.2 (Professional Indemnity Insurance – Application in the CWMF) linked above).
The Minister announced on 21 March 2023 the introduction of a liability cap in the public works contracts and the standard conditions of engagement to limit the liability of a contractor or consultant engaged under a contract to a monetary amount (which will be determined by the client and stated in the tender documents) in support of the delivery of projects under the NDP.
On 31 March 2023, the OGP published the amended standard conditions of engagement for the COE1 and the COE2 incorporating a new sub-clause called “Limit of Liability” (Clause 2.17 in COE1 and Clause 2.16 in COE2), limiting the liability of the consultant to a monetary amount ascertained in a calendar year commencing on 1 January. Amendments have also been made to the Form of Tender and Schedules to facilitate the introduction of the new “Limit of Liability” sub-clause and to set out the exclusions to the liability cap. The monetary amount of the liability cap will be set out in Schedule A (Contract Particulars) in the Tender and Schedule and if no amount is set, the default amount to be applied as the liability cap is set at €1,500,000.
A new Guidance Note (GN 1.6.4) has been published to cover the application of liability caps in the amended COE1 and COE2. The guidance note describes the operation of the financial liability cap and outlines a recommended framework (based on an assessment of risk of loss/damages to the client and considering relevant commercial factors/value for money considerations) to guide clients towards arriving at an appropriate monetary amount to apply to the liability cap. In respect of the default amount for the liability cap, the guidance note provides that clients should not rely on the default amount (which the note states is not a recommended, or a standard norm, for the liability cap) unless it represents an appropriate amount for a liability cap given the circumstances of the project.
The amended COE1 and COE2 applies to tenders received from 10 April 2023 onwards (10 April being the date 10 days after the date of publication of the amendments). The OGP note advises that in respect of those tenders, clients should arrange to issue tenderers with the amended Form of Tender and Schedules and may want to consider extending the tender deadlines to accommodate the implementation of the amendments.
The updated suite of public works contracts introducing a cap on contractors’ liability is expected to follow early in the second quarter of 2023.
- Other
Some of the other actions identified by the Minister are as follows:
- The Project Ireland 2040 Delivery Board (comprising of Secretaries General/ Heads of Office for a number of Departments/Offices along with external members) will be reconstituted, chaired by the Minister and will meet on a quarterly basis;
- Direct reporting to Government on NDP delivery on a quarterly basis throughout 2023 and 2024;
- Review of capacity in major departments and agencies to deliver on NDP priorities (focus on significant capital projects); and
- Independent evaluation of NDP priorities and capacity over the coming months, focusing on capacity to deliver current government priorities, to ultilise sectoral capital allocation and to estimate the impact of the NDP on key economic indicators.
Conclusion
All of the above measures demonstrate a renewed focus by the Government on the delivery of the projects earmarked in the NDP at a speedier pace. This is a very welcome move, no doubt, as investment in Ireland’s infrastructure is key to Ireland’s continued economic success.
Separately, it is worth noting that the COE1 and COE2 were also amended to include an additional provision that requires the consultant to procure collateral warranties from sub-consultants in a form approved by the client and allows the client to withhold 5% of payment from the consultant until the consultant provides the collateral warranty duly executed in the form required.
The following exclusions are listed: death, personal injury or illness, fraud or fraudulent misrepresentation, wilful default, gross negligence, third party property, sub-clause 13.26 of COE1/sub-clause 14.23 of COE2 and any liability which the consultant cannot lawfully exclude or limit.
