2026-04-16

4. Deputy Cian O'Callaghan asked the Minister for Public Expenditure, Infrastructure, Public Service Reform and Digitalisation if he will take action to address the issue of special purpose vehicles being used to avoid future liability in public construction contracts; and if he will make a statement on the matter. [27625/26]

Ba mhaith liom ceist a chur ar an Aire faoi thionscadal tógála poiblí. When multiple parties contribute to a project but only one still exists years later and when something goes wrong, that party can be held liable for 100% of the cost even if it is only 1% responsible. Developers nearly always use special purpose vehicles and then wind them up, which means they are let off the hook, meaning architects and engineers are sometimes left to pick up the bill that could put them out of business. Has the Minister looked into this structural issue? Does he have any plans to address it?

A special purpose vehicle is a separate legal entity established for a specific, predefined financial objective. From a public sector perspective, there can be risks with regard to long-term liabilities for defects, maintenance failures or operational issues. The Government has already taken action to address some of these risks. With respect to public works projects, SPVs are extensively used in the area of public private partnerships. They occasionally arise in conventional delivery models in the form of subsidiaries or joint ventures. They may also feature in housing delivery models such as turnkey or development agreements where private developers establish SPVs for specific developments. However, these agreements are contracts to purchase, rather than what would be considered a traditional construction contract. While SPVs are a legitimate means to limit a business’s liability, careful scrutiny is required in the procurement process so as to ensure that the successful tenderer has the capacity to undertake the contract to completion and to bear the liability that is placed upon them under the contract. Where public private partnerships are concerned that liability can extend to 20 years or more beyond construction of the asset. The PPP company is liable for the maintenance and operation of the asset as well as its handover upon completion to a predetermined standard. The financial standing of the PPP company and individual members of any joint venture are assessed and minimum financial thresholds for individual members of a joint venture may be specified. In the case of a member of a joint venture or a tenderer who is a subsidiary, if they are unable to meet the financial requirements of the tender, they would normally be required to provide a parent company guarantee. The terms of the contract define the extent of liability that the successful tenderer is required to bear. Under the standard public works contract, that liability may extend to a period of six to 12 years after completion of the asset. The choice will normally be predetermined by the level of complexity associated with the project. The terms of the contract also specify the levels of insurance that the successful tenderer is required to maintain for the duration of the contract. The standard form of public works contract requires the contracting authority to set a financial cap on liability. Contracting authorities may specify a lesser or greater amount depending on the risk or complexity of the project.

I know this issue has been looked at and some work has been done on it, but it has not been addressed to the degree that is necessary for architects, engineers and small firms. They are still being caught by this. They are still not able to go in for projects, cannot get insurance and insurance costs are prohibitive. I recently met with representatives of the Association of Consulting Engineers of Ireland who told me how this is driving up costs and driving small firms away from public projects. As the Minister knows architects and engineers do not operate using special purpose vehicles to avoid accountability. They are usually small to medium-sized businesses and are being pushed to the brink because of crippling costs. These costs are ultimately passed on to the taxpayer when it comes to these big public projects if they are not able to bid or if their costs have increased. Insurers already exit the Irish market because of this exposure. The insurer AIG told an Oireachtas committee that the 1% rule was the key reason it withdrew from engineering professional indemnity cover. The result is higher premiums, reduced competition and engineering firms avoiding these public contracts. I urge the Minister to act on this.

I might conclude what I was about to say. I appreciate the points the Deputy has raised. The standard form of public works contract requires the contracting authority to set a financial cap on liability. That depends on the complexity of the project. There are also number of other requirements that are designed to mitigate the risk of non-performance, including holding back a specified percentage of each interim payment - half the total retention sum held is released upon completion with half retained over the defects liability period. It is only released if all the recorded defects are addressed or it may be paid to a different contractor where the original one fails to address the defects. On most public works contracts, there is also a requirement for a performance bond, normally 10% of the contract sum. This is also reduced in half upon completion with the remaining portion held in place for 15 months post completion. We have a government contracts committee for construction, ensuring we develop the model with construction and manufacturing expertise so that there is a collaborative approach at the design phase in terms of the projects which are advanced. This issue has been related to me and particular sectors have raised it. It is about striking a balance and ensuring that there is respective liability. We also need to ensure we do not crowd out competition in the wider sector.

I think, based on the Minister's comment, that he accepts there is a problem here and I ask him to look into it further. The engineers are not raising this for no reason; it is because they are experiencing a very real problem. There is a solution to this which is to insert net contribution clauses into public contracts. That would not increase risk for the State and would simply prevent smaller contributors from being forced to absorb the full cost of defects caused by others. It would not remove any liability but it would ensure fairness in how liability works. England, Scotland and Northern Ireland use these clauses routinely. The Civil Liability Act already allows for it. Section 35(1) explicitly recognises that parties may enter contracts limiting liability to their just share. The legislative basis is there but we need the Government to put it into action. Net contribution clauses would make public contracts more attractive, stabilise insurance costs and help ensure that engineering firms remain willing to tender. It would really help us to deliver the housing and infrastructure that we need. Will the Minister look further into this? Does he accept that there is a problem here?

I have had this relayed to me and we have integrated some of the OGP procurement team into the infrastructure division so that there is wider industry engagement in terms of delivery. However, it is about the balance. There is a need for a framework which attaches liability and responsibility to how contracts are delivered, while ensuring we drive competition. The Minister of State, Deputy Feighan, will be publishing a national procurement strategy in the coming weeks to drive more SME involvement in the broader procurement process for the delivery of infrastructure but also in the wider economy for public contracts. I have had that relayed to me by engineers and others in the community. There is always ongoing engagement with my Department relating to this matter.