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Road construction is turning the corner

The implementation of the road construction scheme in Poland is entering the final phase. The number of calls for tenders announced and those where winners have already been selected is growing; commencing from 2010, the length of road sections under construction will be expanding significantly. However, rising competition among contractors and falling offer prices give rise to a threat to the timely completion of projects and their quality.
After a few years of unfulfilled expectations, in 2009 construction companies finally experienced acceleration in the implementation of the national road and motorway construction scheme. In its latest report entitled “Road construction market in Poland 2009. Development forecasts for 2009-2012”, the research and consulting company PMR estimates in the real-case scenario that in the coming years, the road construction market, measured using the value of completed projects, will be expanding at the average rate of almost 13% a year. As a result, more than 1,000 km of national roads and motorways can be completed in 2012 alone. Still, the authors of the report admit that it is practically impossible to complete the entire national road construction scheme in a timely manner, and they warn that there are many threats which can hold back large road construction projects.
Strong market competition among contractors leading to price wars at the tender phase may have a serious adverse effect on the road construction market in the coming years. In the opinion of PMR analysts, massive accumulation of road projects expected to take place in Poland in 2010-2012 can lead to increased prices of construction materials and higher transport costs for these materials; additionally, it can also increase the costs of equipment and services in the construction industry. Furthermore, in addition to the construction of new roads, the scheme for redevelopment and rehabilitation of the existing national roads and roads managed by the local authorities will be continued – its implementation will involve participation of both contractors and suppliers of construction materials.
As there are more projects in progress, construction costs can increase as well, which will necessitate margin reductions or contractors will be required to maintain the levels of margins at the expense of the quality of work. Moreover, in addition to the recovery in the road construction and in the civil engineering construction segment as a whole, the overall uptrend in construction prices will be also fuelled by the increase in the construction of buildings following suspension of this type of projects in 2009.
In the opinion of the authors of the report, selecting the lowest-priced bids while disregarding the criterion of quality is bound to have an adverse impact on the road construction industry. Additionally, if contractors’ prices go up, contractors can likely push their financial claims or even leave the building site. “A positive development is that in addition to the price criterion, other factors taken into account in the evaluation of bids submitted by potential contractors – such as completion date or warranty period – start to be used in public procurement tenders for construction of new roads. As evidenced by the tender regarding the construction of a western section of the A4 motorway, which was closed in mid-September, the criterion specifying warranty period length may be decisive in selecting the contractor”, says Bartlomiej Sosna, Senior Construction Analyst at PMR.
Since the number of procedures undertaken by the General Directorate for National Roads and Motorways (GDDKiA) with a view to selecting contractors using the restricted bidding procedure is growing, there are fewer protests filed by bidding contractors. The introduction of the design and build model of bidding procedure aims at reducing construction time. The authors of the report also note that while the design and build model is still relatively novel to the Polish road construction market, the Western countries have already started to depart from the system and opt for the Early Contractor Involvement (ECI) model where the contractor and the designer cooperate since the early design phase. In this way, considerable savings are achieved, both in terms of timelines for construction projects and lower costs. This system has been used in the UK since 2001; it is estimated that it reduces the time between starting design work and commencing construction work by up to 40%.

This press release is based on information contained in the latest PMR report entitled “Road construction market in Poland 2009. Development forecasts for 2009-2012”.

For more information on the report please contact:
Marketing Department:
tel. /48/ 12 618 90 00
e-mail: marketing@pmrcorporate.com

About PMR

PMR Publications (www.pmrpublications.com) is a division of PMR, a company providing market information, advice and services to international businesses interested in Central and Eastern European countries and other emerging markets. PMR key areas of operation include market research (through PMR Research), consultancy (through PMR Consulting) and business publications (through PMR Publications). With over 13 years of experience, highly skilled international staff and coverage of over 20 countries, PMR is one of the largest companies of its type in the region.

PMR
ul. Supniewskiego 9, 31-527 Krakow, Poland
tel. /48/ 12 618 90 00, fax /48/ 12 618 90 08
www.pmrcorporate.com

Visit the publisher's website: http://www.pmrpublications.com

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