Merks: Soaring construction material costs and war cause major losses for projects – Baltic News Network

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Both because of the skyrocketing cost of construction materials and the war in Ukraine, construction company Merks has projects in which it has great difficulty in advancing within the historical costs detailed in the contracts. All this leads to significant losses, says Andris Bišmeistars, Chairman of the Board of Directors of Merks.

He explained that last year there had been a marked increase in the prices of metals, steel and wood. Now there are other challenges – electricity and gas prices. The businessman noted that these are global challenges and construction companies know them all.

There is also a marked increase in labor costs. The number of large construction objects has increased, but there is a shortage of workers. On top of that, engineering contractors have already started changing prices.

“We will see the scale at the end of the summer, once the construction objects have progressed enough,” Bišmeistars said.

He admitted that private contractors are accommodating when it comes to offsetting price growth. Unfortunately, the situation with state orders is very bad.

“We met with representatives of the Ministry of Economy and discussed with them the price indexation. It is difficult to compensate for a 300% price increase for building materials. In this case, it’s not construction projects, but rather specific line items to help offset unusually rapid price increases and sort out the issues legally. The customer has to cover the rising material prices because the contractor cannot compensate it with his own income,” Bišmeistars said.

He pointed out that Merks, like other construction companies, has projects in which it has difficulty in meeting the contractual amounts, which leads to considerable losses. One of these projects is the reconstruction of the building of the Faculty of Civil Engineering of the Technical University of Riga, where construction costs have increased for reasons beyond the control of the company.

Bišmeistars pointed out that this is a large and unpredictable price increase that is not 10%, which would be considered natural growth. Bišmeistars pointed out that no one could have predicted this kind of price increase – the price of one ton of rebar rose from 350 to 740 euros.

Russia’s war in Ukraine both directly and indirectly affects the construction industry in Europe, the businessman said. Currently, the whole world is experiencing a rapid increase in metal commodity prices, reaching historically high levels. Depending on the materials, the price increase varies between 35% and 65%. However, there are positions where the spike in price increases even reaches 400%. The price of electric cables has already increased by 50%, since most materials are imported from Belarus.

Merks is also looking for alternative suppliers in Europe, but it’s a long and expensive process, as Latvian and European companies are looking for new suppliers.

As for other positions, Bišmeistars explained that the availability of finishing materials is decreasing. It is clear that the rise in prices will continue.

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