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 Bišmeistars.
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 are global challenges, and building companies experience 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 Bišmeistars.
He admitted that private contractors are accommodating when it comes 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 300% price rise for construction materials. In this case 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 Bišmeistars.
He reported that Merks, similarly to other construction companies, has projects in which it experiences difficulties with staying within contract amounts, and this causes 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.
Bišmeistars stressed that this is a significant, unpredictable price rise that is not 10%, which would be considered natural growth. Bišmeistars stressed that no one could have predicted this kind of price rise – the price of a ton of rebar has 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 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, Bišmeistars explained that the availability of finishing materials is down. It is clear the price rise will continue.
Merks: construction material cost surge and war cause major losses for projects
