Construction Material Prices Soar After War Outbreak, Legal Disputes Between Contractors and Investors Continue

Following the outbreak of war, the prices of construction materials skyrocketed. Many companies are still in legal battles with local governments or developers.

It will soon be three years since the start of the war in Ukraine. The construction, transport, and trade industries have already managed to cope with the initial shock caused by events related to, for example, shortages of raw materials, lack of product availability, or disrupted supply chains. However, events from 2022 still loom over the state of the construction industry. “There are ongoing lawsuits between contractors and investors. This includes both investors from the public sector and developers, for instance. The sudden rise in the prices of construction materials meant that many investments contracted even before the pandemic and war absolutely required recalculation, which local governments and investors did not always agree to,” admits attorney Marek Jarosiewicz, a partner in the Wódkiewicz & Sosnowski law firm.

“Extraordinary change of circumstances” saves construction companies

The consequence of the pandemic and subsequently, even more intensely, the war in Ukraine, was significant unpredictability in the context of prices for certain products and raw materials. In 2021-2022, purchasing construction materials was fraught with multiple problems. Some goods were subject to so-called “current-day prices,” while others required reservations. This led to a drastic price increase.

“Whether there’s a chance to get compensation from local government or investors for the increase in the cost of investment works, is a question that is hard to answer definitively. If the works have been completed and finished, it might be difficult. If the remuneration amount was questioned before the acceptance certificate was issued, there’s a chance to seek remuneration indexation,” says attorney Marek Jarosiewicz. “There was a moment when the construction market went crazy if we’re talking about prices. There was an extraordinary change in the circumstances, which shook up the situation of construction companies. The planned profit of the construction company was not only nullified, but often turned out to be a loss. In such situations, it’s reasonable to seek some compensation,” says attorney Marek Jarosiewicz.

Builders, who had trouble coping with the escalating costs, often decided to turn to the courts against investors.

“Typically, mediations were held first. Neither businessmen wanted to leave the construction sites, nor investors were eager to lose the executor. However, there should have been an agreement reached and compromises made. Investors need to be aware that it’s impossible to carry out an investment at prices set before the war, when construction materials were significantly more expensive and their prices unpredictable,” says attorney Marek Jarosiewicz.

2022: The Worst Year for the Construction Sector

There are many court cases concerning additional construction costs on investments that began before the war and continued during it. Local governments justify their uncompromising view with the discipline of public finances, while private investors, such as developers, argue that they would have to pass the increased costs onto customers, which would be significant when calculating apartment prices. Such stalemate situations are usually resolved in favor of entrepreneurs if they can realistically document a significant increase in the prices of building materials.

“We are also talking about rising labor costs, which drastically increased when many workers returned to Ukraine. There’s no denying that in many ways, 2022 was the worst year for the construction industry and to this day, many companies are still dealing with the consequences of the outbreak of war,” admits attorney Marek Jarosiewicz.

The current situation in the construction sector has improved, although the number of developer investments and public investments is still unsatisfactory for many companies. They see their opportunities in orders related to investments that will be funded from the National Reconstruction Plan.