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Builders threaten to stop construction, protesting increased cost of raw materials

Construction groups demand contracts be adjusted to reflect real increases in their costs of building

Members of the Israel Builders Association protest against the Israeli government in Tel Aviv on July 31, 2022. (Avshalom Sassoni/Flash90 )
Members of the Israel Builders Association protest against the Israeli government in Tel Aviv on July 31, 2022. (Avshalom Sassoni/Flash90 )

The Israel Builders Association says that Israel’s construction industry has reached a crisis point and will collapse unless it is given more help in absorbing the continuously rising costs of raw materials, according to the Israel Builders Association, an organization that represents construction and infrastructure companies in the country.

Companies responsible for working on public buildings and infrastructure have threatened to stop all building projects, saying they cannot continue to deliver at the contract prices that were agreed on.

The companies complain they are being forced to absorb soaring increases in prices on public projects, as there is no adequate government response to the runaway inflation in raw materials. These costs are not only eating into potential profits, but destroying them entirely, making contracts that were signed when materials cost less turn into money-losers for the companies involved, they said.

A noisy demonstration earlier this week in Tel Aviv showed an industry trying to get the message across. The chairman of the Histadrut Workers’ Union of Building and Related Industries, Yitzhak Moyal, has threatened that “if the government continues to ignore it, we will shut down the entire construction industry.”

He told protesters, “We are with you. It is not possible for the state to ignore your just demands. It is not possible for this crisis to continue without the government helping.”

The Times of Israel previously reported that the cost of construction raw materials has been rising beyond all expectations for an extended period of time, as a result of disruption first from the COVID-19 pandemic and then Russia’s war in Ukraine.

Israel has an established mechanism to manage this, known as the Construction Index. This is a tool used when a project is priced before construction is completed. It creates a link that allows the price of the remaining work to increase based on rising costs of building materials so that contractors take less of a risk on the profitability of projects.

The latest numbers from the Central Bureau of Statistics show rises of 4.4% between January and June in the residential construction index, of 5.3% in the commercial construction index, and of 5.1% in the paving and bridging index. These increases are large, in terms of the indices’ historical increases. But global sources suggest that the real increases in the costs of construction raw materials this year are likely to be between 10% and 25%, with core products such as cement and aluminum and wood going up substantially.

Israel’s construction companies claim that governments such as Italy, Greece, France and Bulgaria have found different ways to compensate contractors for price rises by applying retroactive increases and subsidizing new projects.

The construction leaders say that the Israeli government has failed to offer solutions. They believe increases to date in the Construction Index are insufficient, and do not apply broadly to work in the public sector. While there have previously been some negotiations around this issue with the government, those talks did not lead anywhere.

The Builders’ Association says that the failure to address the situation effectively has resulted in more than 600 contractors going out of business in 2021, and many others suffering from uncertainty about their future under current arrangements.

The builders are urging the government to offer additional funds on projects over and above the Construction Index, to reflect the fact that it costs substantially more to build now than it did a year ago. They say the profit margins on these projects are insufficient to absorb the level of increases in raw material costs now being seen.

Raul Sargo, president of the Builders Association, said in a statement this week that “the Israeli government must see the contractor as a partner and not an enemy… The situation is serious and harms the contractors and the workers. For the sake of the industry and for the sake of Israel, we demand from the government to get on board with us and help us to deliver.”

This is not the first time that the Israel Builders Association has complained about the rising costs of raw materials and the limited effect of the Construction Index, but it now seems to be upping the stakes as price increases worldwide show no sign of abating, and delays and shortages abound.

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