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No cakes and customers: European money may need to be refunded if contractual requirements are not met. The Builders Association is already asking the government to build a $ 1 million reserve to offset rising construction costs.
On the island Nemunas – great construction. The Island of Science, a virtual museum, will open its doors to visitors next year. People will be able to travel across the ocean floor, visit the jungle, or even see the human body from within. The project is mainly financed by European money and the budget of the Kaunas City Municipality. 26 million euros, which is the way the Island of Science should be decoupled.
It is true that already now the municipality of the city of Kaunas is comforting not only contractors with delayed raw materials, but also with more expensive materials. And how much the project itself will cost, keep quiet.
“We also know the increase in the price of the materials, the contractors inform, they console themselves, but the contract must be fulfilled. Hopefully we fit those estimates. No other contractor has contacted us to take into account the price increase, ”says Vigimantas Abramavičius, head of the Construction Management Department.
And the Tolminkiemis Gymnasium in Pilaitė is already being built, the value of this project in the contract is about 17 million euros. The director of the company “Joint Projects”, which won the tender, admits that the situation is tense: the most expensive materials will inflate the final price of the project.
“Since the 5 percent increase in prices for all construction occurred. But I would like to point out that the problem is not only the price increase, there is a shortage of raw materials. To have some materials in the facilities, we have to placing an order half a year ago ”, says Mindaugas Devėnas, director of Joint Projects.
The Builders Association estimates that since November 2020, building materials have risen in price by an average of 45 percent in global commodity markets. According to Gedvilas, during this time metal and its products have risen in price twice, plastic and its products – by 80 percent, bitumen – by 30 percent, wood products – by 50 percent.
The director of the association fears that due to the rise in prices of raw materials this year, about a third of the projects envisaged in the State Investment Program cannot be executed, an important part of which is financed with funds Europeans.
“We can have big problems, those projects can be stopped. If the client – the state – does not reach a compromise with the contractor, it can result in the contractor becoming insolvent and then the state will have to re-announce the tender and it will be more expensive, ”says Darius Gedvilas, director of the association of builders.
As a result, there is a risk of misappropriation of European funds, as there is no guarantee that a contractor will appear immediately after the tender is closed and a new one is announced.
True, “Vilnius Development Company” ensures that there is no need to give in to psychosis, because so far no major construction project has stopped in the capital. And the situation is not as tragic as the builders say.
“We are developing projects that are adjusted to our calculated prices. And, of course, the market fixes everything. Sure, the demand is high, the supply is lower, but we may see a further shortage of designers in the project market. But again, we reacted and set longer design deadlines, ”explains Vaida Šopytė, Acting Director of Vilnius Development Company.
True, the Lithuanian Real Estate Development Association explains that some contractors who have won construction bids are simply terminating contracts.
“Some contractors simply decide not to implement the projects they have won by signing contracts. You agree to pay penalties, abandon projects. Because otherwise more expensive materials would eat up your profits, some of the projects could be carried out at a loss.” , says Mindaugas Statulevičius, director of the association for real estate development.
The Association of Builders proposes to the Ministry of Finance to form a reserve of one million dollars to compensate for the increases in construction.
“We have proposed a reserve of EUR 180-250 million if we want to implement a public investment program,” Gedvil said.
It is true that so far neither the Ministry of Finance nor other authorities speak of reserves. According to economists, although the construction sector is currently under great pressure, the situation should still subside and material prices will already stabilize in autumn.
“In my opinion, that rise in commodity prices at the current rate is really temporary enough and will continue until the end of the summer. Because a new wave of struggles is very likely to hit the world in the fall and this tell the markets that the price of raw materials should go down, the price of raw materials will go down. It has become more expensive over the years, “says Alexander Izgorodin, an economist at Brandnomika.
According to the Statistics Department, metal products increased the most in Lithuania by almost a fifth, wood products by 15%, windows and doors by 11% and insulation materials by 8%. And construction increased 6 percent year-on-year in May. Of the buildings, the construction of non-residential buildings increased the most, by 8%.
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