This week, a proposal for amendments to the new Construction Law was registered in the Seimas of the Republic of Lithuania. The proposal seems to favor a specific interest group – construction workers, while the evaluation of its anti-corruption and business impact aspects has not been conducted. According to the Lithuanian Real Estate Development Association (LNTPA), adopting these proposed changes would significantly limit competition in the market for construction and real estate development projects, unjustifiably increase construction costs, and further reduce housing affordability.
“The proposal anticipates that real estate developers, in all cases, including major renovations, will be forced to hire general contractors. It is evident that such a proposal exclusively benefits large contractors. The Construction Law project was prepared and coordinated for over a year with all interested sector groups and individuals. Including such proposals in the final stages of adopting the law, bypassing discussions and impact assessments, is an unfair act that solely reflects the benefit and interests of one group – contractors,” says Mindaugas Statulevičius, President of LNTPA.
LNTPA emphasizes that the proposal registered by members of the Seimas will affect not only the private sector but also public projects and projects developed by their companies, such as ministry towns. “State and municipal enterprises also act as real estate developers and clients. Therefore, this proposal will impact public procurement, the costs of state and municipal projects,” notes M. Statulevičius.
According to him, approving the new proposal would restrict competition in the construction and real estate development markets. Developers would be compelled to hire a general contractor in all cases: “In the Lithuanian real estate market, the number of qualified general contractors capable of developing larger projects does not exceed 10. Thus, developers would be forced to choose from a limited number of market participants, possibly offering similar prices for services. Real competition would not exist, and construction costs would be ‘imposed’ on builders, which would be transferred to end consumers,” assesses the LNTPA leader, adding that in some cases, the choice of a general contractor may be limited to one or two individuals.
It is worth noting that without any reason or basis, the option to choose will almost be eliminated, and the development costs of real estate projects will increase. “Real estate developers, aiming to oversee construction work, hire project managers who supervise contractors’ work to ensure that the work progresses on schedule, etc. By adopting the proposal, the developer would be forced to pay for the same function both to their employees and the general contractor. This would increase development costs, make the final product more expensive, and worsen housing affordability even more than today’s historic lows,” says M. Statulevičius.
Under the current regulations, the real estate developer, the contractor’s client, and the contractor are all responsible for the end consumer. If the proposal by members of the Seimas is adopted, in certain cases, only one person will be responsible for the consumer, as the client and the contractor will coincide. The likelihood of one of them going bankrupt is twice as high, and the potential harm to the end consumer is greater.
It is noteworthy that the proposed parliamentary changes would apply to all types of construction, including major renovations. Therefore, without hiring a general contractor, capital repairs and reconstructions may not be possible, likely resulting in the suspension of many conversion projects.
“Not all developers have the capacity to allocate additional funds for a general contractor and incur additional management costs when carrying out reconstruction or major repairs. Thus, projects in central city areas could be halted, and instead of rejuvenated and attractive territories, there may be ruins and abandoned buildings,” says M. Statulevičius.
According to LNTPA, changing the legal framework irresponsibly and without consulting implementers significantly harms Lithuania’s attractiveness in the eyes of investors: “Many experienced foreign contractors are accustomed to organizing work in stages. Due to changing or entirely unknown, specific building requirements, and possibly due to economic reasons, when they are forced to use general contractors and pay management fees additionally, foreign investors may lose interest in developing projects in Lithuania,” says the President of LNTPA, adding that the association and its members are not aware of any European country where organizing work by hiring more than one contractor is prohibited.
This proposal by members of the Seimas could potentially affect the management of the latest large-scale investment projects in the country – the construction of Teltonika’s new electronics assembly plant and the implementation of “Bio City,” one of the largest biotechnology cities in Europe, by the company Biotechpharma. These are projects that the same parliamentarians, the government, and the President of the country proudly showcase.