A report released by BDO CPA and business consulting firm Ziv Haft, which was prepared for the Foundation for the Encouragement and Development of the Construction Industry in Israel, reveals that construction and infrastructure contractors are on the verge of crisis, given the rise in raw materials due to the corona crisis.
"In view of the increase in inputs, contractors are forced to bear very high costs for the raw materials to meet their commitments given on the basis of a pre-epidemic tender and the increase in inputs following the epidemic. All without adequate compensation from the contractor. To the threshold of flow failure, "it was written.
The report, which has been fully transferred to the "Real Estate Today" system, reveals the large-scale projects, actual liabilities, and expected profits - or rather losses - due to the unexpected increases in raw materials.
BDO experts point out that although the industry deals with projects of great importance to the economy and quality of life of Israeli citizens, it is characterized by relatively low profitability rates so that at any given moment the contractor invests huge sums in the project.
Since the outbreak of the corona plague, there have been significant changes, especially in iron prices, at a rate of about 50%.
At the same time, the prices of other products such as marble and ceramics, stairs, electrical materials and communication systems have risen.
Another factor that has influenced the rise in input prices in Israel is the shortage of quarries and workers, shipping and transportation prices.
A study conducted by the BDO research group on infrastructure projects worth NIS 113 million and NIS 168 million shows that iron, concrete and elements purchased from outside together constitute about 39% of the project's budget.
To this cost must also be added the labor costs which have also become very expensive due to the shortage of foreign workers, especially in the wet jobs.
In the end, the conclusion to be drawn from the analysis carried out by the company is that the two projects have risen in price by at least 10.4% and 13.6%, respectively.
"An analysis of the infrastructure sector also shows that the contractors will end the projects at a loss, that is - not only will they not profit at all but will have to finance the client," the report said. Since the increase in inputs due to the corona crisis is not part of the normal course of business.
This is an unusual and extreme event that could not have been anticipated.
Due to the situation created, many contractors find themselves with critical cash flow to the point of cash flow failure.
"Without government intervention and adequate compensation due to the extreme rise in input inputs, the risk of a major collapse of many contractors in the infrastructure industry increases."
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