The war in Ukraine will have a lasting effect on European construction | News
More than a month after Russia launched a full-scale invasion of Ukraine, the impacts of the war on the European construction sector are beginning to be felt. Since the start of the military offensive, a steady increase in European sanctions against Russia has reduced the supply of materials across the continent, while uncertainty surrounding the supply of Russian oil and gas to Europe is expected to lead to increases significant costs of manufacturing and supplying construction products.
Although the dispute has been going on for more than a month, industry groups in Europe and the UK are predicting that the worst is yet to come for the AEC sector. The escalation of sanctions, the prior availability of products already in stock or in supply chains before the start of the conflict, and the tendency of manufacturers to agree on energy prices well ahead of supply, all created a time lag between the events in Ukraine and their impact on the worksites.
“All projects are likely to be affected by issues triggered by the conflict in Ukraine, ranging from inflation issues to supply chain stability issues,” the Construction Leadership Council (CLC) warned. United Kingdom in a press release. Report end of March. “The crisis may not be resolved quickly and businesses should be prepared for a long period of disruption.”
The most direct impact of the war on European construction sites will be the availability of materials from Russia and Ukraine. Much of Ukraine’s industrial capacity has been destroyed by the conflict, leading to a reduction in the main construction materials produced in the country, such as steel and wood. Ukraine is also a key supplier of clay used in ceramic tiles and sanitaryware.
European sanctions against the Russian economy have meanwhile cast doubt on the availability of key Russian exports such as copper, iron ore and steel. Russia and Ukraine are also major suppliers of OSB, birch plywood and wooden pallets to Europe, as well as bonding resins used in manufactured wood.
In addition to manufacturing, the conflict also impacts the transportation of building materials. Many countries have banned vessels registered or operated from Russia from entering their waters, while delays at ports due to strict controls on sanctioned Russian cargoes will further slow the movement of goods. As noted by the CTCUkrainian and Russian nationals make up 15% of the global shipping workforce, some of whom may leave their jobs in response to conscription by Russia or calls from the Ukrainian government to return home and help the effort country’s war.
Doubts over the future of Russian oil and gas supplies to Europe will also impact construction on the continent. The cost of manufacturing energy-intensive products such as steel, cement, bricks and glass will increase, which could lead some factories to reduce their supply rate. Rising oil and gas prices will also impact shipping and transportation costs, resulting in higher on-site construction costs.
While the conflict is expected to impact projects of all sizes and across industries, the specific issues to be resolved may differ for projects currently on site versus projects still in the design phase. For design projects, architects may experience reluctance from clients to pursue projects until the end of the dispute – a trend also seen during the COVID-19 pandemic. On a larger scale, the building blocks of national COVID recovery plans in European countries could also be postponed as long as the war continues.
More advanced projects, either under construction or under construction, will be subject to greater scrutiny of contract terms and pricing by clients and contractors. The CLC has already observed material suppliers “only willing to quote for [material] price for 24 hours”, making it almost impossible for teams to establish the fixed-price contracts that underpin many European construction projects. This can result in shorter fixed price periods offered by contractors in tenders and more complex discussions between customers and contractors about who should bear the cost of price increases during the construction process.
The CLC also notes the potential for “survival behavior” on the part of customers and contractors in an effort to avoid higher costs, which could result in “less obvious safety and quality trade-offs that are often associated with projects facing financial difficulties.
“It can be in the interest of customers and prime contractors in the current environment to work with suppliers to resolve issues quickly so that problems do not spiral out of control, advises CLC. “The contracts were explicitly designed to manage the impact of cost escalation risk, and any changes to these arrangements in response to the Ukraine crisis will need to be considered very carefully. However, these cost escalations are real and, in many many cases, unavoidable Relying on contractual protections may not be without consequences for customers or contractors.