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Thursday, May 23, 2024

Inflation in Poland. Construction companies ruined by rising prices, threat to road contracts

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Due to the increase in prices, all contracts for road construction will soon be in the red, writes the “Rzeczpospolita” daily. The consequences may be bankruptcies and stopping investments.

“High costs are starting to ruin road construction companies again. The valorization of contracts increased last year from 5 to 10 percent is no longer enough. An analysis of 35 contracts conducted by the Polish Association of Construction Employers (PZPB) and the National Road Construction Chamber (OIGD), to which “Rzeczpospolita” reached, showed that more than a third of them already bring heavy losses to the contractors” – we read in the daily.

Huge cost increase

– We estimate that already today the total increase in costs above the applicable indexation limit, entirely borne by contractors, and consequently subcontractors, amounts to at least PLN 1 billion net – Damian Kaźmierczak, vice-president of PZPB, alarms in an interview with “Rzeczpospolita”.

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As we read in the article, industry organizations indicate that at the end of the first quarter of 2023, the increase in costs, depending on the time of concluding contracts in 2020-2022, reached even several dozen percent. “It’s mainly due to growth fuel prices and energy, but also labor and financing costs. For example, Budimex, the largest construction company on the Polish market, estimates that the current increase in costs on contracts signed before war in Ukraine exceeds 40 percent In the Mirbud Group, 10 percent. the indexation limit has already been or will soon be exhausted on six contracts concluded in 2019–2020. Road workers emphasize that although the pace of price increases has slowed down, the prices of materials and services remain drastically high.

Application to the minister

PZPB and OIGD submitted a request to the Minister of Infrastructure Andrzej Adamczyk to increase the indexation limit from 10 to 20 percent. “Failure to raise the limit will lead to a significant weakening of the executive market, and in extreme cases – to the bankruptcy of construction companies and the suspension of construction” – they warn in a letter to the head of the ministry.

However, as “Rzeczpospolita” writes, so far there is no reaction from him. “Questioned by ‘Rzeczpospolita’, the Ministry of Infrastructure informed that it was consulting the subject in the departments. General Directorate for National Roads and Motorways stated that changing the indexation would require a government decision and additional money, as in April last year, when it received an additional PLN 2.5 billion to increase the indexation limits.

Main photo source: Shutterstock

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