The prices of construction have fallen by a quarter, and the companies' margins are negative.

Prague - The execution price of construction in the Czech Republic has decreased by an average of 23 percent over the past five years since the onset of the crisis in 2008. Due to intense competitive pressure, companies are also forced to subsidize some of their contracts, resulting in negative margins. This is evident from the Quarterly Analysis of the Czech Construction Sector Q3/2013, which the research company CEEC Research will publish in cooperation with the consulting firm KPMG Czech Republic on Tuesday at the Meeting of Leaders of the Czech Construction Industry. ČTK has partial findings available. The execution price of a construction project is the price at which a company secures the contract.
According to 96 percent of the CEOs of the hundred largest Czech construction companies, the price drop has mainly affected the companies' margins. "These have significantly decreased compared to the pre-crisis period, and in some cases have even gone negative, meaning that some firms are subsidizing their contracts," say the authors of the analysis. Reductions in operating and wage costs contribute to partially bridging the price differences between construction costs before and after the crisis.
"A term has perhaps emerged on the market that is not entirely new, but comes with a completely new meaning: 'We bought the contract.' This has nothing to do with corruption, but with the fact that to secure a contract, a company had to offer a price lower than the costs necessary for its execution, and the company then effectively covers the difference," explained the current market practice by Jiří Vacek, director of the analytical company CEEC Research.
Companies finance contracts whose costs exceed the agreed price from other more profitable contracts according to the analysis. "Alternatively, if they do not have such contracts, they finance everything with saved profits from previous years or, in the worst case, through bank loans," the analysis claims.
More than half of construction companies also admit that they do not include the previously common reserve for unexpected costs in their bids. On the other hand, directors of construction companies complain that poor quality and insufficiently detailed construction documentation from investors leads to the emergence of so-called additional costs in up to 44 percent of cases.
Czech construction has been in crisis for five years. While construction production reached 547.5 billion crowns in 2008, last year a total of 424 billion crowns was constructed. Since 2009, the Czech construction sector has cumulatively lost 277 billion crowns. A lack of funds has led to the bankruptcy of the first construction companies. While in 2008 there were 767 companies operating in the Czech market with more than 50 employees, last year there were only 603. This is also a reason for the dumping prices, which in turn favor investors.