Increased costs of construction causes state to revise investment plans

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Tallinn Zoo's Siberian tiger Pootsman. Source: ERR

As the costs of construction go up, it gives the state's coffers a significant blow. Mayor of Tallinn Mihhail Kõlvart (Center) notes that the public sector could cool the market some and delay a few investments.

Pootsman, one of the most fascinating residents of Tallinn Zoo, is currently in Slovenia attempting to seduce local tiger girl Vita. Pootsman has been travelling around Europe for three years now and the hope is for the Siberian tiger to return to Estonia in 2022, when a new "Tiger valley" is completed at the Tallinn Zoo.

But in April, the construction procurement of the tiger enclosure was wrapped up without a contract. All companies involved in the tender asked more for the construction than the initially allocated €2.8 million. There has not yet been a new procurement announced.

Before the Midsummer holidays, Tallinn city council approved an additional budget and it became clear then that the capital city's investments for 2021 would increase by €38 million. The budget was supplemented with another €9 million after.

But it still July and there are multiple construction and design procurements to organize. "We are currently considering Tallinn also having a second additional budget, but we will begin assessing these decisions carefully in the mean time before we start accepting tender results," Kõlvart said.

At the end of June, the mayor told city institutions that if state procurements go over budget, all decisions must be coordinated with the city government. Kõlvart noted that in addition to construction prices going up, there are less applicants for public procurements, as well.

"And therefore you must decide for each result if the proposed prices are adequate and delaying the tender could lead to it becoming more expensive or if there are few applicants, then suspending the tender must also be considered," the mayor said.

Three companies applied to develop common buildings for the Police and Border Guard Board and the Rescue Board on Ruhnu Island, but all their offers were too high and no contracts were drawn up. According to state-owned real estate group Riigi Kinnisvara AS director Mihkel Mäger, the group's procurements tend to go up 15-20 percent in price recently.

"There have been cases where the procurement's initially forecast price is exceeded by us finding additional resources," Mäger said. "We hope to make new announcements in the fall for the procurements that got more expensive and were cancelled."

Kõlvart: Public sector could help cool the market

Mäger hopes that the construction market slows some by fall. The reason for hope could be that the materials deficit, which bumped construction prices massively, is set to ease up. "Wood is moving now so the price of wood could begin decreasing," Mäger noted.

He believes that once the increase stops at some point, construction prices could stabilize for some time. "I do not believe in major price decreases, because nobody will likely look to decrease the achieved prices," Mäger said. "But at some point, there will likely be less orders made by those who are not prepared to continue at those prices. That is where pressure could mount for prices to decrease. But that will certainly not happen in the near future."

Mihhail Kõlvart also made a point of orders affecting prices. "We currently see that firstly, there are many procurements and secondly, applicants want to code in any kind of risk. No local government is capable of carrying this by themselves," Kõlvart said. "So I think the public sector should especially slow down."

Tallinn's most recent significant procurement was for the designing of the Tallinn Hospital project. The tender was announced in April and hoped to draw in offers up to €11 million. The city tried again last week and is now giving the tender a €23 million price limit.

Mihkel Mäger said that Riigi Kinnisvara's procurements get expensive around construction. "We have been able to conduct design contracts within their initial estimated costs," he noted.

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Editor: Kristjan Kallaste

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