Construction workers' unions in Ireland recently lodged a claim with the Labour Court seeking, amongst other things, a 12% pay increase for construction workers to be implemented over the next three years. The Construction Industry Federation (CIF) has opposed the claim. The Labour Court held its first hearing on the matter on Monday 4 March 2019. Any pay increase recommended by the Labour Court will increase the costs of construction projects tendered after that recommendation is made. However, who would or should bear the cost of such an industry-wide pay increase (impacting over 65,000 workers) in construction contracts already entered into is less clear.
Pay Increases in Building Contracts
Whether the developer or the contractor in a construction project holds the risk for pay increases depends entirely on the terms of the building contract in place. It may also be influenced by how pay increases are implemented. Developers might argue that contractors are best placed to foresee pay claims and that these should be accounted for in the price offered at tender. Contractors might counter that these are unforeseeable costs that add to the cost of construction and, as such, should be a developer risk.
The standard RIAI Schedule of Conditions of Building Contract (RIAI Contract), the most frequently used form of building contract in Ireland, passes the cost of increased labour on to the developer. This arises twice in the RIAI Contract. Firstly, the RIAI Contract allows for a recalculation of construction costs due to an increase in rates of wages. Secondly, the RIAI Contract requires the developer to pay additional costs incurred due to changes in legislation, which includes labour costs.
However, as developers, funders, and investors require greater price certainty than is offered by the standard RIAI Contract, clauses which create price uncertainty are typically amended. In almost all forms of procurement it is market standard to fix the costs of labour and for the contractor to carry the risk for increases in these costs. In the market, these risks are seen as manageable by a contractor on the basis that the contractor should be able to foresee and take account of any increases in labour costs.
Sectoral Employment Order (SEO)
Any SEO for construction workers is legally binding on construction sector employers, whether they are CIF members or not, and its terms are enforceable in the Workplace Relations Commission. The Labour Court can recommend a new order which will ultimately be decided on by the Minister for State for Small Business within six weeks of the recommendation. Interestingly, there are only two SEOs currently legally enforceable in Ireland, the SEO regarding construction workers and the SEO regarding workers in the mechanical engineering building services contracting sector.
The last sector-wide pay increase for construction workers was implemented by an SEO in October 2017 (the Sectoral Employment Order (Construction Sector) 2017 as reported on by William Fry). This SEO, and pay increase, came about from an initial request by the CIF to the Labour Court in April 2017 and following submissions from the CIF, construction workers' unions and other stakeholders.
The 2017 SEO increased rates for construction workers well above the statutory minimum wage. The SEO rates are also approximately 10% above the Registered Employment Agreement system (which previously set pay and rate increases and which was deemed unconstitutional in 2013 by the Supreme Court in McGowan v The Labour Court).
Interestingly, in their current claim to the Labour Court, the construction workers' unions are also seeking a travel allowance. Such a claim was opposed by the CIF in 2017 and was subsequently rejected by the Labour Court in its recommendation to the Minister.
Given construction workers are already paid more than the minimum wage, a new (or varied) SEO and a pay increase for construction workers would pressurise employers in the industry and perhaps cause a construction slowdown or cancellations of construction projects. However, recent events in Ireland indicate that an agreement and solution to this matter between all stakeholders might be desirable for all parties to avoid industrial action and to maintain positive industrial relations in the industry. We await the recommendation from the Labour Court.