Road builders may take state to court over soaring materials prices

Road construction.
Road construction. Source: Transport Authority

Companies engaged in road building may approach the state to compensate them for rising construction costs relating to projects ordered by the state. Road builders also do not see the conflict in Ukraine, a major factor in the price rises and in canceled projects, as something for which they are responsible, but rather more a force majeure event.

Sven Pertens, head of lobby group the infrastructure construction association (Taristuehituse liit) and chairman of the board of infrastructure construction firm TREV-2 Grupp told ERR's radio news that: "Out of our four projects, two have mostly continued in operation, while two have stopped due to a lack of orders. Obviously, people have also started to be laid off. Companies do not have such a demand for new people, and are instead looking at whether there is any reason to keep everyone, on the list or whether the staff roster should be cut."

"The sector is currently in such a state of collapse due to a lack of state funding, plus state inertia in compensating for soaring prices. Should we let this process play out in full, through to entrepreneurs' bankruptcies, it will take a huge amount of time to arrest and reverse this, period," Pertens went on.

Road builders are already ready to go to court to protect their rights, Pertens said.

"We are going to sue on the grounds that the occurrence or non-occurrence of the conflict in Ukraine was not the responsibility of the entrepreneur, meaning the entrepreneur should not reasonably have considered such a scenario. Secondly, that when this war broke out there and there was an impact on supply chains, prices, everything, and this is an impact on the world market, that it is also in no way controlled or managed by the entrepreneur," he said.

While prices of construction materials have fallen since spring, they are still significantly higher than before the current conflict began; Pertens put the figure at a 20-30 percent rise overall, with variations depending on the type of material (granite aggregate being half the pre-war price compared with reinforced steel, which is a third more expensive), but the state reduction in construction volume – the Transport Board (Transpordiamet) decision in May to postpone the construction of nearly 50 road objects planned for this year has had its effect too.

A Transport Board pledge to subsidize construction price rises by up to 4.6 percent is insufficient, Pertens added; the inflation should be compensated to its full extent, he said.

If a project falls through after the state has handed it over to the contractor, the companies will go to court, Pertens added, likely early next year since projects usually end in the autumn, meaning the situation should be resolved this year.

Janar Tükk, director of the infrastructure management service at the Transport Board, said that in addition to compensating the 4.6 percent price increase, road builders are already being compensated for the bitumen price increase and additional costs in road maintenance. 

The board does not have any more funding at present, he added, noting that contractors do indeed have the option to go to court if they feel it necessary.

The board needs €60 million more from the state budget than was provided for this year, he added – bringing the total to €240 million. Should this not be forthcoming, even more projects will be postponed, he said.

At the same time, Rail Baltica, the planned high-speed rail link, would provide some relief to those contractors who get tenders on this project.

Other companies need to adapt, he added.


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Editor: Andrew Whyte

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