With the announcement of a stimulus package to create 13,000 jobs, PETER STAFFORD breaks down the detail of the 2012 Public Capital Programme.
As reported in a previous edition of The Surveyors Journal, the Society’s recent report on the Irish construction industry has forecast that the output of the sector in 2012 may fall as low as €7.5bn. Since the publication of this report in May, other commentators, including the Government, have recognised that continued low levels of output will lead to further job losses in the sector and will undermine the industry’s future skill base. Since 2009, the Construction Industry Council has been calling on the Government to support employment and maintain the skills within the construction sector through increased public investment in infrastructure and public building.
Importance of Exchequer investment
Since the emergence of the financial crisis, the proportion of construction activity that is accounted for by public investment has increased to over 50%. As a result, the roll out of the annual Exchequer capital investment programme is of real significance to the overall performance of the sector.
The 2012 Public Capital Programme amounts to a forecast spend of €3.6bn, of which around 60-70% will be related to construction activity. However, according to the latest Department of Finance bulletins, actual spending is 7% behind schedule at the end of July, and some 18.6% lower than capital spend for the same period in 2011. Across Ireland, scheduled projects have been postponed or cancelled as a result of this reduced investment.
Therefore, the Government’s recent announcement of a €2.2bn stimulus package has been largely welcomed, not least for its recognition that investment in public buildings and infrastructure can have an immediate impact on preserving jobs and – during the course of the design, procurement and construction stages of development – giving much needed work to companies both within the sector and outside. In total, the Government estimates that by investing around €2.2 billion, 13,000 jobs could be sustained, with some of these jobs being created within the next few months, and the remainder in 2014 as projects reach construction stage.
€1.4bn in public–private partnerships (PPPs) has been targeted into four main areas. Individual projects will need to be evaluated and appraised, so until the value for money tests are undertaken, very few specific projects have been announced by the Government.
This process will be undertaken by the National Development Finance Agency, in conjunction with the main sponsoring departments (the National Roads Authority, Health Service Executive and others). Private investment is likely to come from the National Pension Reserve Fund, the European Investment Bank, Irish banks and other sources of private funding, potentially including private pension funds in Ireland. A second source of income will be the sale of State assets, a process that was begun with the McCarthy Report a number of years ago. Of the €850m that will be raised from this process and the licensing of the National Lottery, €350m will be invested in PPPs.
In education, investment will be split between two new PPP school bundles – each of six new schools – in areas where demographic trends show the greatest need. The remainder of the funding will be invested in the DIT Grangegorman campus, which is intended to replace the 39 sites across Dublin, and eventually connect to the LUAS extension. The LUAS works themselves will, of course, create their own employment opportunities. Educational projects will be procured in 2013 and will be completed between 2017 and 2018. Grangegorman is likely to begin enabling works next year so that the PPP elements can begin in 2015/2016.
The investment in health is likely to amount to €115m and is the least developed investment plan. In total, two bundles of ten centres, mostly primary care centres, will be procured by the end of this year, with construction starting in 2014. Both the educational and health investment will be linked to areas of Ireland where demographic changes are placing the greatest pressure on existing public infrastructure.
In the field of justice, €190m will be spent on a number of courthouses, pathology laboratories and garda stations. These smaller, regionally based projects are likely to commence in 2013 and continue through 2014 and 2015.
In a period of very difficult public finances, it has always been important that project financing is not made available simply for its own end; rather, it has long been the aim of the Society and other commentators that public investment should be targeted in sectors and regions where it will lead to improved stock of public infrastructure and a better built environment. While the value for money audits and other evaluations may be cumbersome, the Government has announced that it is looking for ways in which the pre-construction stages of investment can be speeded up, so that work can commence as quickly as possible. A high-level steering group will oversee the sectoral and geographic spread, so that investment takes place where it is needed. Evidence from the USA shows that Barack Obama’s American Recovery and Reinvestment Act 2009 has had very mixed results, and that poor investment strategy without proper governance and oversight has limited the real impact of what could have been achieved.
The Society’s report suggests that by 2014, private sector construction activity may start to re-grow, especially for foreign direct investment clients and the energy retrofitting of private commercial buildings. If this stimulus package is invested carefully and sequenced properly, avoiding some of the mistakes of the US stimulus package, it should maintain the viability of many valuable construction firms until better market conditions emerge.