Amid drastically rising prices and the war in Ukraine, construction companies today have to deal with the issue of survival: in order to take part in a public procurement process, they would have to operate at a loss.
Clients from the public sector set unrealistic expectations for contractors in tenders, offering extremely low price ceilings, and reject the bids of companies because they are too expensive and re-announce tenders. These tenders are increasingly being won by foreign contractors who do not have the necessary competences and staff to carry out the project, but they offer the lowest price that is out of line with the market; therefore, these contactors are unable to complete the project successfully. It should be noted that not all contracting authorities carry out market consultations prior to the procurement, as recommended by the Law on Public Procurement.
On Tuesday, the conference “Public Procurement of Construction Works in 2022-2023”, organised by the Lithuanian Construction Association (LCA), focused on how to improve the public procurement situation in Lithuania. At the conference, participants of the construction market, experts, the representatives of contracting authorities and public authorities made presentations, shared their insights and discussed the challenges of public procurement of construction works, examples of good practice and the necessary changes.
“The construction market today is faced with major challenges. In some places, construction costs have risen by more than 50%. We haven’t seen such a sudden and sharp rise in prices for decades, and companies are no longer able to participate in public procurement tenders with the prices offered by contracting authorities. Companies no longer want to play a second fiddle and sign a contract that is only beneficial to one side. Public procurement of construction works should be subject to logical price indexation in line with the market situation, there should also be an obligation, rather than a recommendation, to use a standard construction contract, and it should be mandatory to record in the electronic construction work log the settlements between the client and the general contractor and between the general contractor and the subcontractor,” said Dalius Gedvilas, president of the LCA, during the conference.
At the conference, Viktor Voroncov, head of Layher Baltic, gave an overview of the risks in high-value construction procurement, Aidas Vaičiulis, director of the Public Institution Construction Sector Development Agency, analysed the distribution of responsibilities of construction participants, while representatives of the Public Procurement Office (PPO) talked about the new Guidelines for Construction Procurement and shared their recommendations on what to take into account when conducting procurement of construction works. At the conference, public procurement was also discussed from a legal perspective: forensic expert Prof. Dr. Sigitas Mitkus analysed the case law on disputes arising between the construction manager and the general contractor, chief adviser of the Supreme Court of Lithuania Karolis Šimanskis delved into the case law on contractors’ qualification requirements and cost-effectiveness criteria, while Karolis Kačerauskas, attorney at law at the law firm Ellex Valiunas, was looking for a solution on what to do in order to make a standardised contract mandatory.
The conference was not lacking in discussions of speakers, who sought answers on how to select a reliable foreign contractor in public procurement of construction works, while protecting contracting authorities and Lithuanian subcontractors, when it is appropriate to divide the procurement into lots, how to distinguish the manager from the contractor for clients, and when it is appropriate to purchase construction management services. It also discussed what qualification requirements will help contracting authorities to select the right contractor and whether the new cost-effectiveness criteria are “useful”.
The conference also included an interactive survey of participants to get the audience’s views on topical issues analysed during the discussions and presentations. 55% of the participants in the survey indicated that the screening of foreign contractors participating in public procurement tenders is not sufficient in terms of economic soundness and construction capacity. The most important criteria for selecting a contractor were experience in construction projects, a high level of own working capital in the company’s annual balance sheet and the availability of a large number of workers for the task. As many as 70% of the audience indicated that they did not agree that the Public Procurement Office should adopt a register of qualification and economic criteria for the selection of construction contractors and that contracting authorities should not have the right to create their own criteria.