Final prices of construction contracts are one fifth lower than planned

Prague - Construction companies in the Czech Republic are still struggling with tough competition in tenders, which significantly drives down public procurement prices. The final prices are thus on average more than a fifth lower (22%) than the projected prices, according to which public investors have prepared their budgets. This is based on an analysis processed by the analytical company CEEC Research and the Chamber of Public Procurement Administrators, which is available to ČTK.
    The number and volume of public contracts for construction are rising this year. In the first six months of this year, state investors launched 1,877 tenders for construction contracts, which is 38 percent more than last year. The total value of these projects increased year-on-year by 28.6% to 63.8 billion crowns.
    The Railway Infrastructure Administration is particularly active, having announced construction contracts worth 6.2 billion in the first six months of the year (41.2% more year-on-year), and the Directorate of Roads and Highways with contracts worth five billion (26.4% more year-on-year).
    Notable larger announced construction contracts include the reconstruction of the Sklené nad Oslavou - Ostrov nad Oslavou railway line and Klatovy - Železná Ruda railway line, each for 0.8 billion crowns, the reconstruction of the Prague-Smíchov - Rudná - Beroun railway line for 0.7 billion crowns, or the construction of the R4 Skalka expressway for 0.8 billion crowns.
    However, builders cannot yet celebrate too much from this money. The analysis points out that of the tenders announced from January to June 2014, only 28% have been completed so far, and nine percent of tenders have even been canceled. "Thus, 63% of contracts from the first half of this year remain unawarded," emphasizes the analysis.
    Additionally, companies continue to face significant price drops. For contracts that were successfully awarded to specific contractors in the first six months of this year, the competitive price was 22% lower than what public investors expected and what they had prepared their budgets for.
    "Prices are often at the edge of profitability, sometimes even below it. There are still companies in the market willing to offer dumping prices to secure at least some work to utilize their capacities, hoping that the situation will improve later and they can compensate for losses with future contracts," described the current practice by Jiří Vacek, the director of the analytical company CEEC Research.
    "Ultimately, this leads to the bankruptcy of these firms, which in turn causes problems for their subcontractors, who do not get paid, as well as for investors, who thus find themselves in significant complications," Vacek warned.
    Jiří Koliba, Deputy Minister of Industry and Trade for Construction, believes that economic recovery, along with construction, is indeed coming, but it will not be rocket-fast or straightforward. "Not all public contracts are realized immediately, and with the current price dumping, they do not necessarily mean a significant profit for construction companies. I am convinced that there is only very mild optimism here," Koliba asserts.
    Czech construction has been significantly affected by the economic crisis, having lost 443 billion crowns since 2008, equivalent to a turnover for an entire year. According to the analysis of statistical data, 41 larger companies went bankrupt during this time, and up to 50,000 jobs in the sector were lost. One of the crisis's consequences is also a significant decrease in prices in public construction tenders.