The consequences of Russia’s invasion of Ukraine in 2022 translating into hindrances in the execution of investments are still being felt by 88% of construction companies in Poland, according to a survey conducted among the largest companies in the industry by the law firm DLA Piper and the consulting and engineering firm CCM (Construction & Claims Management). Half of the companies surveyed estimate the cost increase at 10-20%, while 1/3 estimate it at more than 20%.
“A general increase in the cost of carrying out investments is indicated by 84% of companies, with 78% experiencing primarily an increase in the price of construction materials. Half of the companies estimate cost increases at 10-20%, and a third say they have exceeded 20%. Disruptions in supply chains have resulted in delays in material deliveries or the inability to purchase materials, highlighted by 48% and 40% of respondents, respectively. One in three companies reported an exodus of skilled workers, according to the survey.
DLA Piper attorney Piotr Olkowski points out that the problem particularly affects contracts entered into before the escalation of the war in Ukraine in 2022, and applies equally to general contractors and subcontractors executing long-term contracts.
“We anticipate that in 2023, many companies in the construction and infrastructure sectors will continue to try to renegotiate contracts to adapt them to the changed circumstances,” said Olkowski indicated.
As the survey showed, over the past year, only 26% of companies reached an agreement with the investor to change pay terms, and in 27% of cases this proved impossible. The rest, or nearly half of those surveyed, are still negotiating with procurers.
“The current situation is extremely difficult, comparable only to the crisis of 10 years ago from the period of preparation for Euro 2012. However, we did not face such a price shock even then. The aspiration of construction companies to valorize their remuneration is therefore completely justified, with each request for valorization to be considered on a case-by-case basis, taking into account the specifics and conditions of the implementation of a given contract,” commented CCM managing partner and expert in time and cost analysis Michal Lempkowski.
“In our experience, the key to success is, in particular, a properly prepared cost analysis, including demonstrating that the contractor exercised due diligence at the stage of submitting its bid and took into account foreseeable risks related to price changes. This is particularly important in negotiations with a public sector investor,” added Lempkowski.
The survey found that 14% of traders plan to seek full compensation for cost increases through the courts.
Although the prices of all analyzed crude oil grades returned to pre-war levels as early as July/August 2022, there were no equally rapid declines in the prices of petroleum materials, including road bitumen and fuels. Asphalt prices did not return to the levels quoted before February 24 until December 2022. In contrast, fuel prices, an important cost of construction work, continue to remain at least 20% higher than a year ago, the report’s authors point out.
Source: DLA Piper/CCM and ISBnews
