Saturday, October 12, 2024

EU Funds Unlock Anticipated Infrastructure Boom for Polish Construction Sector

INFRASTRUCTUREEU Funds Unlock Anticipated Infrastructure Boom for Polish Construction Sector

With the unlocking of EU funds, companies—particularly those in the construction sector—anticipate a significant surge in infrastructure investments this year. However, the availability of labor may pose a challenge to the realization of these projects. Entrepreneurs are also concerned that a rapid accumulation of investments could lead to increased demand not only for manpower but also for materials and specialized subcontractor services, potentially driving up prices. “From a formal perspective, we are prepared to handle this accumulation. There is the possibility of targeted changes in public procurement law, and I do not rule this out,” says Hubert Nowak, President of the Public Procurement Office.

At the end of February this year, after nearly a three-year hiatus, European Commission President Ursula von der Leyen announced the unlocking of EU funds for Poland. This includes a total of €137 billion (around PLN 600 billion) from the Cohesion Policy and the National Recovery Plan (€59.8 billion, including €25.27 billion in grants and €34.54 billion in preferential loans). The long-awaited influx of EU funds is expected to provide a developmental boost to the Polish economy and trigger a boom in infrastructure investments, particularly benefiting companies in the rail and road construction sectors. However, entrepreneurs are concerned that, following three years marked by a lack of contracts and deteriorating financial conditions, there may be challenges in managing the accumulation of new orders and completing them within the stipulated timeframe. Especially since, in the case of the National Recovery Plan, the majority of funds must be spent by 2026.

“The biggest expectation and challenge we all face with the anticipated accumulation of investments are related to workforce and resources, their availability and professionalization, as everything has a limited timeframe,” says Hubert Nowak to Newseria Biznes.

Data from the “Quick Monitoring” by the National Bank of Poland, updated in April this year, indicates a clear improvement in the investment optimism of enterprises in the second quarter of this year—companies are gradually increasing their interest in starting new investments and more frequently declare their intention to continue ongoing projects. In terms of industry, the construction sector is particularly expecting a significant increase in investment activity, anticipating higher demand for its services due to the influx of EU funds. According to NBP’s Quick Monitoring, construction companies have been starting more new investments for five consecutive quarters and plan significant expansion in their scale.

“In terms of public procurement, from a formal standpoint, we are prepared to handle this accumulation. We have all the tools and legal solutions that address the needs related to the implementation of these contracts. However, it may happen that human and personnel resources—whether on the side of procuring entities or contractors—may prove insufficient,” says the President of the Public Procurement Office.

Companies are also concerned that the rapid accumulation of infrastructure investments could lead to increased demand not only for personnel but also for materials and specialized subcontractor services, which in turn could drive up prices. Additionally, entrepreneurs are still worried about the unfavorable legal environment, including imperfections in the Public Procurement Law (PZP), such as issues with valorization clauses, numerous appeals, and legal disputes, or the mechanisms for selecting contractors, where price still plays a dominant role.

“Price will always be a key element,” emphasizes Hubert Nowak. “In private purchases, the first thing that interests us is also the price. Of course, other criteria, such as quality or delivery time, always interact, but price always matters. Just like in our private shopping habits when buying a car, house, or ordering a service. Similarly, this price will always matter in the public market. The question remains how to ensure that—alongside price—quality and timeliness are also at an appropriate level, and each procuring entity tries to answer that.”

As he emphasizes, the Public Procurement Law is not currently a blocker or a brake on the upcoming investments.

“There are many flexible elements, negotiation aspects, or cooperation-related provisions when issues related to transparency arise, reaching the widest possible market circle. So, I think that in terms of rigid, strict law, we have this topic explored. Of course, there is the possibility of some targeted changes, and I do not rule that out. However, in principle, I think we are prepared for the upcoming peak of investments in terms of strict law,” says the President of the Public Procurement Office.

In Poland, the amended Public Procurement Law (PZP), adopted in September 2019, has been in effect since January 1, 2021, after a long vacatio legis period to allow market participants to adapt to the new rules. The new PZP replaced regulations that had been in place for over 15 years, aiming to adapt them to new economic realities, introduce more transparent procedures, and eliminate defects that discouraged contractors from seeking public contracts (the average number of bids in procedures was decreasing year by year).

The Public Procurement Office, in its statement on the priorities for 2024, announced the continuation of the review of the new PZP, which began last year, after three years of its implementation. “It is a natural complement to the entire process of creating the PZP. Three full years of experience with the new law is a good time to identify areas that can be improved,” it said.

PZP, the regulations governing the awarding of public contracts, is a key form of public sector participation in the economy, primarily in the construction sector. Under these regulations, over 32,000 entities in Poland procure goods, services, and construction works. In many industries, public contracts account for over half of the revenue for one in four companies, and for one in ten, they generate up to 75% of their income. The total value of contracts awarded under PZP procedures is nearly PLN 200 billion annually, which constitutes about 10% of the national GDP.

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