There is a real danger that a once-in-a-lifetime opportunity to deliver on a massive national infrastructure plan is going to be missed. The rare opportunity arises because right now, the country has the money to invest in its own future.
The risk of blowing that chance is because not enough is being done to enable projects in the National Development Plan (NDP) to actually get built.
Capacity constraints within the state sector, long lead-in times, red-tape, planning rules and rising costs are coming together in a way that raises questions about how much of the €165bn NDP will ever happen.
When it comes to current day-to-day expenditure nobody wants to see the Government spend too much or too little.
Spending less money than budgeted should imply cost savings, but in the state sector, it often means things just didn’t happen quickly enough.
Underspending or spending less than you had budgeted for, is particularly bad when it comes to capital programmes.
Building transport infrastructure, housing and schools are all vital.
The Government decides what the country needs by way of infrastructure in the years ahead. It develops a plan and allocates the money.
Yet, when you look at the Exchequer figures for the year to November 2021 – and they are remarkable in terms of the economic recovery – capital spending was down €436m on the 2020 figure in the same period.
In 2020, according to the Construction Industry Federation, the State had a €780m underspend. The Government said that by August, just 65pc of this year’s capital allocation had been spent.
The obvious explanation for all of this is Covid. Restrictions on construction activity earlier in the year meant that various projects did not get as far as they had hoped.
Even allowing for that, it means the carry-over into next year, which will represent two consecutive years of spending less than was budgeted, may well be substantial.
Carry-over funding in the state sector that is not spent, has a tendency to disappear.
There is no doubt that spending less on capital projects than had been budgeted, helps to flatter the overall Exchequer outturn for any given year.
Under the NDP, around €11.1bn is budgeted to be spent in 2022. A breakdown of the figures shows how unlikely achieving that could actually be.
There is €1.4bn budgeted for upgrades to public transport which includes €1.37bn for national, regional and local roads.
According to Tom Parlon, chief executive of the CIF, very few new road projects will be starting next year.
There is a budget for an Ardee bypass but not a lot else.
The much-talked about Cork to Limerick motorway will need to progress its design and route selection process.
Lots of objections to the route are expected so progress will be slow.
Parlon said that shortcomings in the state apparatus around many infrastructure and building projects affects planning, utility connections, fire certificates and a wide range more.
He said that getting water and electricity connections to new building projects can take up to six months.
On housing, around 21,000 new homes will be built this year, despite construction being closed for three months. Next year, we could see 25,000 to 26,000 new homes being built, which is not a bad number. Not enough, but not bad.
The NDP has budgeted for €6bn to be spent by the Department of Housing next year. That includes €2.5bn for 9,000 new-build social houses.
If the 26,000 new homes estimate for 2022 proves accurate, and the NDP delivers on its plan, then almost one-in-three of all homes built next year would be social homes.
If they aren’t built, that will be another NDP carry-over into 2023.
The plan envisages €251m in the capital budget next year for connectivity and communications, including the National Broadband Plan (NBP).
By November, the NBP had connected just 2,700 premises this year.
This was put down to Covid restrictions and delays.
The NBP operator, National Broadband Ireland has said its plan will add 12,000 new premises per month in 2022. Based on a five-day working week, that is 600 premises per day.
If it doesn’t, is that another carry-over?
On education, the NDP envisages a €792m capital budget spend for the Department of Education. Presumably much of this will go on new schools or refurbishments.
Lots of new schools have been built in recent years but more investment is badly needed. According to Parlon, the nature of school building contracts is a real problem in light of the huge price increases in materials.
Let’s say a builder submits a tender 12 months ago with a lump sum price. He wins the deal and signs the contract three months ago. He now finds that steel has gone up by 80pc in price, timber by 60pc and cement by 30pc.
He has zero room to re-negotiate the price as these are fixed-price contracts. He can’t make it work so he pulls out.
The state body turns to the second best tender and then the third and fourth. Eventually, the whole thing has to go out to tender again.
Fixed-price lump sum contracts used by the State are different to those used in the public sector when hiring a builder to put up a massive new facility somewhere.
We have all seen the massive overruns on large public projects which suggests there is flexibility. But in reality, some firms can become experts at utilising contract loopholes, where for example, there is a design change to the project.
The lack of price variability can end up incentivising that approach.
Unless the public sector can raise its own game in delivering on these vital projects in the next few years, a huge opportunity will be lost.
The NDP was never going to be front-loaded but we don’t want it to be rear-ended.