A combination of significant increase in cost drivers and emergence of new inflationary factors has informed the latest Arcadis Poland Tender Price Index (TPI). Polish construction sector presses ahead, with residential and industrial sectors booming. But escalating materials costs and availability issues are creating challenges for on-going projects and could potentially threaten the viability of new schemes, unless early intervention measures are put in place, Arcadis warns.
This analysis comes courtesy of Arcadis’ inaugural Poland Construction Market View, entitled “Gathering storm?”, which provides an overview of current inflation drivers and explains how they shape tender prices. To be published bi-annually, the Market View will give an overview of the latest developments in relation to Polish construction sector to help inform financial decision making for projects and programmes.
Construction materials costs have risen by an average of 22% in the last 12 months and increasing energy costs are only going to contribute to this trend. Combined with logistics challenges – especially in haulage and distribution - and emerging issues regarding labour availability, this is creating a potential inflationary storm on the horizon. Recovering new orders are another source of inflationary risk, with the pressure amongst contractors to win work easing and competitiveness levels reducing. Construction sector is also already highly aware of the inflation trends at hand.
With so many cost drivers in place at the moment, inflation has been generally acknowledged and consequently the supply chain is far from being shy about making allowances for it. Clients wanting to pursue their projects in the current conditions need to understand the sources of risk and be prepared to tackle them. Clients should consider procurement options that best balance competition with how attractive the project is to bidders. Another option for securing a competitive initial price could be to consider including risk sharing mechanisms in the contract. However, this is a calculated move that should only be considered if bidders are willing to adjust their bids, Arcadis cautions.
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