Rising prices of construction materials are disrupting the recovery of construction SMEs and of the EU
Brussels, XX July 2021 – Despite a health context that seems to be improving slightly in Europe, the economic impact of the Covid-19 pandemic is still being strongly felt. This is particularly true in certain sectors, including construction, which is suffering from a lack of availability and a worrying increase in the price of the materials needed for its proper functioning. SMEs in the construction sector are calling on the European Commission to carry out a thorough examination of the situation and to intervene quickly, within the limits of their capacities, when necessary.
During the past year, construction companies have very often reported that they were undergoing harsh difficulties regarding two intertwined issues:
A sharp rise in the prices of several construction products and raw materials
A lack of construction materials on the market
The ongoing increase in prices experienced across EU member states, paired with a scarcity of several materials, has generated significant problems to our construction SMEs and crafts. Indicatively, the prices of materials such as metals, timber, cement, slab, and plastics – including the construction products made from such materials – have seen a soaring increase compared to the pre-Covid period.
In this context, EBC has been closely monitoring the situation and working hand-in hand with its membership, to secure a clear view of the situation in the construction products market and its impact it on construction sites across Europe. The comprehensive data we have collected from our members is accessible via this link.
According to national associations of craftsmen and construction SMEs, despite local specificities, many construction SMEs have documented that their daily activities have been significantly suffering due to this ongoing situation. Several of them have addressed specific requests to their respective national, regional and/or local authorities to identify solutions to mitigate the undesired effects.
In this regard, EBC and its construction SMEs call on the European Commission to closely examine the situation and intervene within the limits of its competence. It is indeed necessary to acknowledge the distress caused by high prices and scarce materials to the multitude of actors of the construction value chain across Europe, while disproportionately affecting SMEs.
In particular, it is paramount to ensure that the objectives of the Green Deal and the Renovation Wave are safeguarded. The unprecedented financial support put forward by the EU to recover from the Covid-19 pandemic, could be rendered insignificant for European citizens, if it is eventually used to cover the consequences of the prices increase. Such a scenario would be a real threat, as it could result in the partial derailment of the National Recovery Plans.
Vigilance and flexibility from public authorities and all relevant stakeholders need to be ensured to identify and trigger the necessary targeted responses with a view to supporting on the ground the construction SMEs in difficulty because of this market disruption. We invite the Commission to work with all European, national, regional, and local stakeholders, to make sure the right solutions are found.
RISING PRICES FOR CONSTRUCTION MATERIALS
Members’ actions to mitigate the problems
Comprehensive analysis – survey carried out
Half of construction companies indicate that it is difficult for them to work profitably under current prices. The main culprit is the volatile construction materials market.
A recent survey conducted by Bouwunie among 187 construction companies shows that 87% are experiencing delivery problems and abnormal price increases.
The delivery problems are jeopardizing the planning. The delays can be from 2 weeks to several months
The current situation is highly exceptional. Delivery problems can also jeopardize the execution times. There are fines for some public assignments. This is force majeure for the contractor, and they therefore call on clients to show the necessary flexibility.
87% of the construction companies that filled in the survey are currently having problems with the delivery of certain materials and products and/or with abnormal price increases of certain products. Abnormal price increases - 16%; Delivery or supply difficulties - 8%; Both - 77%
Asking for understanding from private customers and also the necessary flexibility for public contracts where no price revision is foreseen.
The current situation is highly exceptional. Delivery problems can also jeopardize the execution times - there are fines for some public assignments.
This is force majeure for the contractor, and they therefore call on clients to show the necessary flexibility.
Overview of legal possibilities including different scenarios (B2B, B2PA, B2C)
Several actions, including a letter to the Minister of Economy and Finance, as well as a number of press articles
The price of copper rose by 27.9% year-on-year and by almost 10% in the month of December 2020, while the price of zinc rose by 22.2% year-on-year and by almost 4% in December 2020; supply difficulties also concerning wood, steel, slate
Legislative suggestions to integrate best practices in public procurement include:
not systematically resort to firm price contracts, in favour of adjustable price contracts
adapt the parameters for discounting in the case of a firm price contract;
provide for a very limited period of validity of tenders (e.g. one month) so as not to expose companies to major economic hazards;
Reactions took place by the French Government and Parliament
Government press release pledging to:
ensure, on a case-by-case basis, that penalties are not applied when delays in delivery or performance are linked to soaring raw material prices or supply shortages of companies;
where possible, to grant extensions of time and to consider, on a case-by-case basis, other implementation measures that would address the situation;
inviting local communities to support this effort.
Prices of raw materials like steel, plastic, copper, aluminium, timber and paint have soared by 30-80%
Disruption expected to last at least until the end of 2021
a mechanism for automatically postponing the date of application of late payment penalties when the delay is due to a supply difficulty, both for public or private sector activities
an instruction to purchasers to enter into negotiations with public contract holders in order to share the extra costs caused by soaring raw material costs
a possibility to consider, despite the principle of contractual freedom, the temporary application to private professionals of the same price revaluation rules as those that apply to public buyers
letter to Economy Minister
Press articles (Figaro, Batiactu)
Government press release – response to CAPEB asks
Debate in parliament following CAPEB activity
SNSO letter to the Prime Minister, copy sent to Economy and SMEs Ministers
Letter to Minister for Economic Development
Asking to take recommendations on board, take urgent measures to curb the crisis.
The current Code (Stato) does not provide for adequate price revision mechanisms.
Price increases are unjustified and due to operators, who are speculating in view of expected recovery of the construction market.
The Federal Research Office found that in April 2021 the price increases of non-energy commodities were 33.4% compared to a year earlier, with an acceleration of price increases which in March 2021 we at +24% compared to the same month of 2020.
The Confartigianato estimates the potential impact of 19.2 billion euro more in a year charged of 621,000 artisans and small businesses
According to Confartigianato, the greatest increases are recorded for base metals with + 65.7% between March 2020 and March 2021. Particular tensions for iron ore with annual increases of + 88.1%, followed by tin (+ 77%), copper (+ 73.4%) and cobalt (+ 68.4%). And again zinc (+ 46.7%), nickel (+ 38.5%,), aluminum (+ 36%), molybdenum (+ 32.4%). Alarm also on the front of energy raw materials, whose prices in March 2021 even increase by 93.6% on an annual basis.
A survey conducted by the CNA Study Center, dedicated to " The recovery of the construction sector between subsidies and increases in raw materials " centred on SMEs operating in the sectors of installation of systems, building, doors and windows, has found that the recovery of the construction sector is threatened by the steep rise of raw materials prices. This includes elements such as the “Superbonus 110%” and subsidies
Nearly four out of five companies (79%, to be precise) in the sample report increases in the prices of materials, raw materials and equipment compared to the prices a year ago, before the pandemic broke out.
In detail, in the construction sector the most important increases in a year concern metals (+ 20.8%), with peaks exceeding + 50%; thermal insulation materials (+ 16%) with peaks ranging between + 25% and + 50%; the materials for the plants (+ 14.6%) , with peaks that exceed the + 25%, and the wood (+ 14.3%) .
The survey results were disseminated in the form of articles in a number of outlets: Panorama, La Stampa, La Discussione, Il Secolo XIX, L'Adige
Letter by 4 Crafts Associations to the Minister for Economic Development
In-depth analysis of the Confartigianato Research Office
CNA survey – conclusions circulated in various outlets
Meeting with the Minister of Public Works to discuss contract adjustments (price revisions) to be carried out in the framework of public contracts
systematic payment of advances on price revisions, given that contract adjustments are normally only taken into consideration at the time of the final account (setting up of a working group to review the current price revision formula with the specific aim of being able to pay companies advances on price revisions and thus deal with companies' liquidity/cash flow problems)
Commitment by the Minister to extend the deadlines for the execution of works on public sites (official communication to be made by the Ministry)
Commitment by the Minister not to apply the penalties for late performance of the contract within the agreed timeframe (official communication to be made by the Ministry)
Exceptional implementation of short-time working in case of material shortage for mid-May and June.
Currently in talks with the Minister for the Economy and the Minister for Labour with a view to continuing the partial unemployment scheme beyond June.
Meeting with the Minister of Public Works
Government commitments obtained
In the Netherlands, general legal conditions are in place that deal with the issue of price increases. For infrastructure works there are monthly indexes which form the basis for compensation.
That said, not all customers are willing to pay and not all companies are ready to take legal action if the surplus is not settled. This system works for unforeseen increases, but the definition of "unforeseen" is not clear.
For ongoing construction sites this should not be an issue, because at the time of the offer and acceptance it was not foreseen that prices would increase, but remains to be seen.
In the structural steel sector (e.g. reinforced concrete) companies are trying to stockpile, as they fear that supplies from China will run out. Here the price increase is felt strongly.
In certain cases, the issue of lack of materials is more prominent than the rise of prices (e.g., experiencing great difficulty due to the limited availability of PP sewer materials for a project in The Hague)
Detailed position paper including a situation analysis of the prices changes for the construction sector with data, and specific proposals for changes to legal provisions that will allow to overcome the crisis
Without prices revision, the fundamental element for the rebalancing of contracts would disappear, SMEs would be harmed, the principle of risk and peril of the contractor could not be moderated, and there would be great variations in prices
The ultimate aim is to highlight the damage caused by the current regulatory regulation of price revision, and to return and return to the previous regulatory situation, where the price revision was the norm and not the exception
Position paper shared with competent authorities
No centralized initiatives were taken vis-à-vis national authorities – actions were taken at cantons level
FMB letter sent to all partners in the construction value chain to inform them of the situation and urge for their cooperation in resolving potential issues;
FMB letter sent to companies concerning some legal elements, notably on existing construction sites but also future construction sites
Information letter to construction value chain
The Nationl Guild of Mastercraftsmen is Irelands exclusive member of EBC
European Builders Confederation