ACEI – ANNUAL DINNER – PRESIDENT’S SPEECH
24th March 2006

Honoured Guests, Ladies and Gentlemen,

At times during the course of this busy, enjoyable but challenging year, I recalled the  opening lines from Charles Dickens book “A Tale of Two Cities”.
“It was the best of times, it was the worst of times”  -  (only joking!)

In the midst of the best economic times that this country has ever seen, the talk in Government circles and the Department of Finance in particular, has been one of abandoning existing Construction Contracts and bringing in new ones.   And all this to an Industry that has been the major contributor to the economic boom of the last 12 years!

So it’s not surprising that things are indeed a bit fraught in the corridors of power at the Department of Finance these days, particularly when the “dreaded” word ‘Consultant’ is mentioned!    Apart from Construction Design Professionals, there have been long running battles between Medical Consultants and the HSE over new Public Sector Contracts.   Newspaper headlines, such as “Lack of trust puts consultant contract talks in jeopardy” signal exactly what is at the root of the problem – a complete lack of trust due to an absence of partnership!   “Open and honest  communications” are hugely important to human beings! 

In the Construction Industry, we have spent the last 10 months or more “discussing” the new suite of contracts produced by the Government Construction Contracts Committee (the GCCC).   The Department of Finance refused to entertain the word “negotiation”!   For us as design professionals - architects, engineers and quantity surveyors serving the Public Sector, of particular concern have been the Conditions of Engagement that were tabled back in May 2005.   I don’t propose to give a blow by blow account of these discussions tonight, but I do wish to highlight the importance of something that is all too familiar to us in the Construction Industry.  We all know that any successful project, any major goal or milestone is only ever achieved by close co-operation, trust and partnership!

I have always believed passionately that the day you have to rush to the small print of a contract, specification or Conditions of Engagement, is the day that the very fabric of a project starts to unravel!

The History of our State abounds with amazing gestures of Collaboration and Partnership between the State and its people – both innovators, professionals and workers.

1925 saw the commencement of the Ardnacrusha Power Station Project, followed rapidly by the founding of semi-state companies such as the ESB, Bord na Mona, Irish Sugar Company, Aer Lingus and laterally BGE.

The foresight of the Government of the day was crucial to building a solid foundation for the State, resulting in today’s economic miracle.

Entering the EEC in 1972 opened up new markets, - and Free Trade agreements and proved a great attraction to inward investment, spear headed by the IDA.

Following another Government initiative in 1987, the IFSC was launched, and under the Single European Act, Ireland entered the international financial services sector!

By working in partnership with Government over the last 12 years of the Celtic Tiger, the construction professions have seen a total transformation in Ireland’s growth and economic patterns to the point where Ireland is the envy of many States in Europe and further afield.

Today we have a working population of 2m - double that in the early 90s!

We have a Construction Industry with an output of €30bn, over 5 times that of 10 years ago and representing 22.4% of overall GNP.

All of this growth and development was achieved by Governments and the Private Sector working “TOGETHER” – not just for individual or party political gain but for the collective good of the country  - AND WHAT A SUCCESS STORY IT HAS BEEN!

As I said in my opening statement

THESE ARE  INDEED  “THE BEST OF TIMES”

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So as the ACEI along with EI, RIAI, SCS and CIF entered the talks with Government back in June/July last year on Draft New Contracts/Conditions of Engagement, we believed that as in the past, we could achieve a successful outcome to our discussions, from both sides.   We were particularly encouraged by the words of An Taoiseach at the 9th Plenary Meeting of the Social Partners under “Sustaining Progress” in July last, when he said:

‘The central mechanism through which we have worked together is social partnership. Through the partnership process, we have helped to ensure that the policies of Government and the efforts of the social partners create the right environment for sustainable economic and social development.  Over the past eighteen years, if we have learned anything, it is the lesson that shared analysis of the issues and problem-solving approaches have paid dividends to this small country’.

He couldn’t have put it more strongly!    Anything that has been achieved in this State, particularly in the last 12 years or so has been down to the Government and Industry working together.   And let us not forget, that despite the enormous demands on the Construction Industry in particular, - Contractors and Professionals together have stepped up to the mark under the National Development Programme and delivered time after time, despite the huge demands on our practices and particularly on individuals – these challenges have spurred us on to the extent that many of our young people today simply cannot recall a period of economic downturn – it has always been this busy they say – there has always been the next new project to work on – Today the country boasts infrastructure and huge commercial developments, the likes of which our parents and grandparents would have never believed possible.

Which reminds me of what my own generation recalls as the good old days of the 50s, 60s and 70s!

1. In those days you drank water from the garden hose and not from a plastic bottle costing €2!

1. Your baby cot and toys were covered with brightly coloured lead based paint which you happily chewed and licked!

Later on in your career, your love of red lead paint meant you freaked if the steel fabricator put on red oxide paint instead! – and today the HSA would imprison you if they caught you doing it!

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But back to the issue of “partnership” with Government and the Public Sector.

It had to be expected that in a heated and “highly charged” economy, with enormous demands on performance, deadlines and tight resources, we wouldn’t always get it right and neither did we! 

Both sides have freely admitted to that in regard to cost over-runs and delays on the early infrastructure contracts in particular.  Minister McCreevy flagged these concerns, most notably back in 2004 concerning his desire to bring in Fixed Price Lump Sum Contracts in particular for the Construction Industry.

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The Government is certainly to be commended on its initiative of Transport 21 worth €34 bn, nevertheless it is worth noting that Minister Cowen in his keynote speech at its launch in November last, stated “much is now being achieved on our current roads programme. The NRA is completing its 2005 projects at a total out-turn cost of €1.17bn which compares to a  preconstruction budget for 22 road projects of €1.18bn.  These projects are progressing ahead of or on schedule.”

From the very outset of our discussions with the GCCC on the Consultants Conditions of Engagement, we made it absolutely clear that we fully supported the Government’s aims of greater cost certainty and value for money on publicly funded construction contracts.

We have never had any difficulty with the concept of “fixed price lump sum fees” for a defined scope of service and work, within a fixed time frame.   We readily do this in the Private Sector.

Given the volume of Private Sector work at present, it must be obvious to the Public Sector that design professionals are delivering value for money and cost certainty – that’s why our Members continue to win repeat projects and are treated fairly by our Developer Clients.

But we have great difficulty in accepting a Public Sector scenario where there is an absence of clarity and loosely defined changes in scope, plus unquantifiable risks (such as ground conditions and archaeology etc).

Cost Certainty is currently being achieved based on modified existing contracts as currently adopted by the NRA.  But we are surprised that all those years of trust and partnership appear to have been discarded and we are left with a distinct feeling that Government no longer regards such values as important.

As professionals, providing expert advice, experience and judgement, we find it disingenuous to be asked to accept a selection system for Consultants where price at up to 60% of a Quality/Price ratio is the dominant factor, irrespective of the attributes or specialist experience and skills of the practitioner, including proven track record of delivering value for money – where’s the BIG PICTURE!

In the US, the Brookes Act in 1972 outlawed selection of professional services based primarily on price and such remains the case today.  To quote the American Institute of Architects – “using qualified architects and engineers ensures Government Facilities, including schools, hospitals and universities will be built using the highest design, engineering and construction standards available – not doing so jeopardises public health, welfare and safety!.

In both the US and the UK, selection of professionals primarily on the basis of price, just didn’t work and led to low standards of service, quickly outdated designs, with Government often left to pick up the tab for shoddily finished work.

Procuring professional services, primarily on a cost basis, is certainly not compatible with “Value for Money” criteria.  It has been proven already not to work!

I very much doubt that any member of the Government or indeed anyone else in the Public Sector, selects their medical consultant primarily on cost, seeking a quote for services!    I also doubt whether they try and negotiate a Fixed Lump Sum to cover all potential surgery side effects or any unknowns discovered during the course of the operation! – we won’t mention the lawyers here!

Consultancy Services should never be procured on this basis.  Professional advice and services based on expertise, intellectual know-how and professional ethics – cannot be determined based primarily on LOWEST COST.

The proposed Fee Correction Clause, yet another issue for our members, is clearly a Penalty Clause on Design Professionals – nothing else!

There have been a few minor amendments offered recently in this regard but none which leave us feeling anything other than “victimised”.

The combination of a 10% reduction in Design Team fees for tenders exceeding the project budget by over 10%, - with tendering contractors having to predict inflation for 42 months in their bids,  makes for an extremely fraught and explosive cocktail mix as a Team embarks on a Construction Project!
 
Trust, Partnership and Teamwork will go out the door on Day One as Public Sector Contracting Authorities hand out “Red Cards” to most of the Project Teams’ key players even before a ball is kicked!    This will only encourage adversarial relationships and a greatly improved market for construction lawyers!

51% of ACEI member practices comprise 10 or less staff and along with SMEs in the contracting sector, will be the ones most seriously impacted by these conditions. 

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We are at a loss to know what is behind the basis for this new “adversarial” thinking in Government – particularly given An Taoiseach’s remarks on social partnership that I referred to earlier.

Can they seriously discard the successes of long-term partnership and adopt such an adversarial approach to an Industry that has delivered so much for the country?

Last August/September, America learned to their cost that natural disasters are no respecters of stable political systems and Hurricane Katrina devastated the city of New Orleans.

The official report blamed “indifference at all Government levels” and “Government ineptitude”.

It may not be a hurricane in Ireland’s case, but it could well be tidal surge and rising sea levels that cause serious flooding along our coastline or in our major cities and I suggest, indeed predict, that sooner rather than later, this country will desperately need the professional advice, expertise, innovation and above all the trust and partnership from the country’s design professionals.

Ireland needs a strong indigenous engineering profession to handle the predicted increase in the scale of natural disasters.   We are in danger of losing our “bright young people” to the more highly paid professions such as law and finance – because, quite simply Government appears not to value the independence and skills of professional engineers and regards construction professional services as some sort of “off the shelf commodity” – I sincerely hope such is NEVER the case.

In the end it will be the Government and the Public who will be the losers, all because absolute cost certainty above everything else, has become the Government’s HOLY GRAIL, - and “Value for Money” has been relegated to a secondary status.

In closing, I would urge the Government and its representatives, the GCCC in these negotiations, to continue to work with us, not against us, in the Construction Sector in a meaningful way to achieve our common goals of fair and equitable Terms of Engagement for Design Professionals based on trust, respect and partnership for both sides and a common objective of delivering “Value for Money” as well as cost certainty.

It was Lord Salisbury who in 1855 cynically remarked,

“When Governments seek to correct an ill they usually create 2 more!
I believe there is still time to retrieve the situation and I am hopeful that the “worst of times” referred to earlier in our deliberations with Government and the GCCC will be resolved and that we can still progress and achieve an acceptable result for both sides.

Together, in Partnership with Government, there is a huge amount to be achieved – but we will only get there if we all work together towards the common goal.

It has been said of society today that we  “Know the Price of Everything and the Value of Nothing”.  

John Ruskin in the 19th Century – put it this way.
“It’s unwise to pay too much, but it’s unwise to pay too little.  When you pay too much you lose a little money, that is all.    When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing you bought it to do.   The common law of business balance prohibits paying a little and getting a lot.  It can’t be done.  If you deal with the lowest bidder, it’s well to add something for the risk you run.   And if you do that, you will have enough to pay for something better.”

Thank you for your attention and I trust you will enjoy the remainder of the Reception.

Derrick Edge

President