Raw materials crisis: 40% of construction companies have breached contracts or stopped works

Almost three out of every four construction works in progress have become over a 10% more expensive

2 min
Aerial view of Sagrera station under construction.

40% of construction companies in Catalonia have been forced to breach contracts they had underway due to the rise in prices and lack of supply of raw materials, according to a report presented on Wednesday by the Catalan Chamber of Construction Contractors (CCOC), based on a survey of its members. The report is clear: 100% of construction companies have been affected by rising prices and 80% by the shortages or delays in the supply of raw materials.

"We demand price review mechanisms in construction works," said the president of the CCOC, Joaquim Llansó, before "uncontrolled rises" that unbalance existing contracts.

The study indicates that 70% of companies have seen how the cost of the work they were doing has risen over 10% in recent months. For more than half of the companies the cost increase has been between 10% and 25%. But for 13% the increase has been between 25% and 50%. In many cases, companies, faced with this cost increase, have not been able to meet their commitments. In fact, the survey indicates that 40% of construction companies have been forced to terminate a contract or to stop works due to this increase in the price of raw materials. Of this 40%, in 70% of cases work was interrupted and in 40% of cases they have breached their contracts.

Companies in the sector point to steel as the raw material that has become the most expensive, followed by wood, aluminium, copper and glass. According to Joaquim Llansó, since January corrugated steel has risen 71% in price, copper by 59%, wood by 6% and aluminium by 68%, percentages well above inflation, which despite being high only reaches 4%. That is why Llansó has asked for "an automatic solution" for works in progress, calculating a percentage increase by law, as has already been done in Italy or France, and "price correction mechanisms" for future works.

On the other hand, the secretary general of CCOC, Ignasi Puig, has indicated that these increases in raw material prices must be added to the increase in energy costs and the impact of bottlenecks in supplies. According to the study, in 65% of works shortages have delayed the execution of work, but without affecting deadlines. On the other hand, in 12% of the cases there have been delays in completing the work and in 5% of cases companies have been penalised for failure to meet partial or total deadlines. Puig has indicated that the construction raw materials with the longest supply delays are wood (60% of cases), steel (50%), aluminium (32%) and glass (26%).

Criticism of the budgets

The CCOC has also presented the report on public works tenders for the third quarter. Despite the increase in tendering, the president of the CCOC has not spared criticism of the low execution of investment budgets, especially by the State. "There is no sense in saying that you will invest and then not do it," said Joaquim Llansó. In fact, he indicated that with a State investment budget in Catalonia for this year of some €2bn, only €492m were tendered out between January and September, and the budget execution has been 13% in the first half of the year.

In this sense, Llansó has indicated that it is difficult to identify those works that are repeated in successive budgets because they have not been done, but he recalled the case of commuter trains and the non-fulfilment of investments announced by both the governments of Rodríguez Zapatero and Mariano Rajoy.

Public works tenders soar by 138%
  • €2.2bn The tender of public works from January to September of all the administrations in Catalonia added up to €2.2bn, 138% more than the same period last year. In spite of everything, the CCOC considers this amount insufficient, since it considers that it should stand at about €5.5bn per year, 2.2% of the GDP.
  • -18% Despite the increase in the tender so far this year, in the third quarter it only rose to €680m, with a decrease of 18% over the previous quarter. Still, it's a 32% increase over the third quarter of 2019, before the covid-19 pandemic struck.
  • €1.2bn City councils, county councils and provincial councils lead the tendering of public works. These local administrations tendered €1.2bn between January and September, 107% more than last year. It is more than half of all public works tenders in Catalonia (53.5%)
  • 92% The Generalitat tendered works worth €533m between January and September, almost double (92% more) than in the same period of 2020. Nearly a quarter of all tenders in Catalonia are made by the Generalitat
  • 532% The State has improved its work tender in Catalonia by 532% from January to September compared to the same period last year. However, it is the administration that invests the least, €492m, 22.3% of the total.