Both due to the surge of the cost of construction materials and the war in Ukraine, construction company Merks has projects in which it has major difficulties to progress within the limits of previous costs detailed in contracts. All this causes major losses, says Merks board chairman Andris Bismeistars.
He explained that last year there was a clear price rise for metals, steel and lumber. Now there are other challenges – electricity and gas prices. The businessman noted these were global challenges, and building companies experienced all of them.
There is also a clear increase of labour force costs. The number of large construction objects has increased, but there is a shortage of workers. On top of that, engineering subcontractors have already started changing prices.
“We will see the scale at the end of summer, once the construction objects have progressed enough,” said Bismeistars.
He admitted that private contractors were accommodating when it came to compensating price growth. Unfortunately, the situation with state orders is very poor.
“We have met with representatives of the Ministry of Economics and have discussed with them indexation of prices. It is difficult to compensate a 300% price rise for construction materials. In this case it is not about construction projects, rather specific positions to help compensate the unusually rapid price rise and settle problems legally. The client should cover the price rise on materials because the contractor cannot compensate it using their own earnings,” said Bismeistars.
He reported that Merks, similarly to other construction companies, had projects in which it experienced difficulties with staying within contract amounts, and this caused considerable losses. One such project is the reconstruction of Riga Technical University’s Building of the Faculty of Civil Engineering, where construction costs have increased due to reasons outside the company’s control.
Bismeistars stressed that this was a significant, unpredictable price rise that was not 10%, which would be considered natural growth. Bismeistars stressed that no one could have predicted this kind of price rise – the price of a ton of rebar had increased from EUR 350 to EUR 740.
Russia’s war in Ukraine both directly and indirectly affects the construction industry in Europe, said the businessman. Currently the entire world experiences a rapid price increase for metal raw materials, reaching historically the highest levels. Depending on materials, the price increase ranges between 35% and 65%. However, there are positions on which the peak price rise reaches even 400%. The price of electrical cables has already increased by 50%, because most materials are imported from Belarus.
Merks is also looking for alternative suppliers in Europe, but this is a long and expensive process, because Latvian and European companies are looking for new suppliers.
As for other positions, Bismeistars explained that the availability of finishing materials was down. It is clear the price rise will continue. (BNN/Business World Magazine)
