Council may re-examine £100m of projects over cost inflation

A local authority is considering re-examining construction projects worth more than £100m in the face of supply-chain volatility.

Council officers in Aberdeen have told elected representatives to re-tender some schemes and alter the scope of others to deal with cost inflation.

The projects include primary schools, road improvement works, regeneration projects, the relocation of a library, an integrated mortuary, an infirmary project and a recycling centre.

Among these is Torry Primary School, being built by Morrison Construction, and Tillydrone Primary School, which is a Robertson Group project.

The enabling works for Tillydrone school have been wrapped up. However, a report has recommended that it carry out a re-tendering exercise for the main works.

Council officers, the local authority equivalent of civil servants, said in a report: “Given the current market conditions and the current pricing of work packages, the recommendation is to undertake a re-tendering exercise to test best value.”

It is estimated that re-tendering would push the school project back six months.

Four council-led housing projects in the area needed to be altered, despite enabling works being under way and, in some cases, completed, the report said. These included the sites at Craighill, Kincorth, Tillydrone and Kaimhill.

The officers also recommended that construction on these should be paused at the “next most appropriate milestone” since the current price was not the best value. Once halted, the council would then look into ways of reducing cost pressures, such as value engineering, alternative procurement routes or re-phasing delivery.

David Ayre, property networks manager at the Chartered Institute of Public Finance and Accountancy, an organisation for public-sector accountants, noted that inflationary pressures such as the Russia-Ukraine war, COVID and material costs are causing tendering issues for many bodies.

He added that as more construction jobs are tendered for, contractors would begin to make claims for increased costs, which would in turn increase inflationary pressure on councils.

“To understand how we can mitigate these pressures we need to identify the root causes and share possible solutions throughout the sector that are being developed and implemented,” he said.

Aberdeen City Council’s city growth and resources committee will consider the recommendations on Wednesday.

The Construction Leadership Council product availability group recently confirmed that the average inflation for products and materials this year has been about 23 per cent, with further increases expected, particularly for energy-intensive products.

A North Wales consortium carrying out work for councils warned in May that construction costs could threaten six of its schemes.

Tier one contractor Kier was also criticised for its roadworks quotes, which were deemed “unaffordable” by local councillors in Suffolk.

Last year, a school construction job in Lurgan, Northern Ireland was re-tendered due to inflationary pressure.

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