The Irish construction sector is facing a growing crisis as the prices of many materials soar and companies increasingly nervous about entering into fixed price contracts in an inflationary environment.
Skinny profit margins are turning into losses in many jobs, government and contracting authorities delay projects hoping costs will come down, and contractors are reluctant to enter into new fixed-price contracts because material prices are rising so rapidly.
Several high-level construction industry sources said so Sunday independent There are growing fears that Roadbridge’s civil engineering-focused receivership last week is a sign more trouble is to come.
At least one other big player in the industry is Working on similar important issues, a number of sources said.
“They need the time and space to try to resolve these issues, but public sector contracts are the main issue,” said a well-placed source.
Other insiders reported a major reluctance among contractors to enter into fixed-price contracts, with some saying firms are deliberately setting unrealistically higher prices on tenders to avoid winning contracts as further increases in material prices are inevitable.
Increased diesel costs since the start of the war in Ukraine have had a major impact on companies that – like Roadbridge – have large fleets of construction machinery and excavators, said Brian Coogan, CEO of the Irish Plant Contractors Association.
“Roadbridge had a fleet of around 500 machines. The fuel bill went from less than €300,000 a week to almost €700,000. If you can’t control your costs, that’s a big problem.”
Roadbridge’s receivership and the 650 jobs at risk at the company could be just the beginning of the damage. Coogan said: “The subcontractors are owed almost 40 million euros and perhaps 400 other jobs are at risk.”
Across the construction sector, subcontractors are also finding it increasingly difficult to get timely payments from larger contractors in the form of so-called retention money — money held back in large contracts to cover unforeseen problems, Coogan said.
“You should get that money back within two or three months of completing a job, but in some cases it’s now taking up to two years. For subcontractors, this may well be their win,” he said.
That’s what another construction expert said The shutdowns caused by Covid had resulted in serious pressure between customers, developers and subcontractors.
“A lot of it was settled through negotiation rather than through legal channels, but it made everything very, very close,” he said.
Builders, especially those with fixed-price contracts for social and affordable housing projects, are also affected.
“There’s a lot of heat coming up,” said a homebuilding source. “Wood went from around 285 euros per cubic meter to just under 600 euros. And our timber suppliers have now told us that 48 percent of the stocks are from Russia and are now threatened and could drive prices even higher.”
Firms that build private homes only bring new units to market when they are well advanced to avoid a price collapse, he said. But contracts for affordable housing units are signed well in advance with set prices and homebuilders are refusing to budge, a knowledgeable source said. The prices for social housing part V – often agreed up to three years in advance – no longer cover the construction costs.
“If you’re doing these kinds of deals with a guaranteed buyer on the other side, you’ve probably been considering margins of between 8 percent and 12 percent. That’s eroded pretty vividly now, so they’re trying to finish them up and hand them over and get out of Dodge asap now,” the source said.
“But what will happen is that the home builders who have been making this stuff so far will refuse to accept contracts with housing associations and local authorities and will have a hard time getting anyone to build the product.
“Unless these increased costs can be controlled, you simply won’t find builders willing to embark on these types of long deals. The alternative is to go back to public procurement to build houses again, and that is flawed in many ways and will increase the cost manyfold.”
The chief executive of another high-profile construction firm that relies on the commercial sector said his company is also struggling. Problems have arisen on one project, but the current environment means the company has little room for maneuver, he said.
“With projects that are currently coming to market, there are no profit margins. Materials have risen and work has risen, Covid has slowed work which has been on critical schedules. If one guy on a team gets Covid it can take out a crew of 10 or 20 and that can move a program forward.
“The contractor has to absorb a large part of the additional costs. Any profits we made on contracts were quickly eroded to the point that we are turning away from bidding. We will consolidate, review the order book and say goodbye to the larger projects.”
Inflation is also putting pressure on wages in the industry. A large number of bricklayers protested outside Liberty Hall last week as a sign of growing discontent among workers.
“Our city is full of cranes and yet we are afraid,” the crowd was told. “Fear of not getting a PAYE job, fear of having to work for subbies, fear of being unemployed – fear of a downturn and having to go through that hell all over again. Conditions aren’t getting any better [and we] work at the same prices as 20 years ago.”
https://www.independent.ie/business/irish/construction-facing-crisis-as-prices-continue-to-soar-41461542.html The construction industry faces a crisis as prices continue to rise