Construction companies in Montenegro plan to seek amendments to all current state and municipal public works contracts if the proposed Euro model is adopted, seeking to recover higher labour costs, according to Mile Gujić, president of the Construction and Building Materials Industry Association at the Chamber of Economy of Montenegro. One calculation puts the possible increase in contracted work values at 20% to 30%. Extra costs to state and municipal budgets next year are estimated at 30 million to 40 million euros.
The proposed amendments would use so-called sliding scales to compensate contractors for labour costs that were not in place when they signed their contracts. Gujić said companies had priced their tender bids using costs at the time and could not have known that labour costs would rise.
The Euro model proposes changes to a package of financial laws, including minimum-wage increases. For jobs requiring primary education, the proposed minimum would rise from 600 to 1,000 euros; for jobs requiring secondary education, it would rise from 600 to 1,250 euros. The minimum for workers with higher education would increase from 800 to 1,400 euros.
Contractors have received notices of price increases from suppliers of construction and other materials and services. They also expect higher labour costs from the wage proposal. “The rise in labour costs through higher minimum wages, even doubling them, is evident,” Gujić said.
Analyses are still under way, Gujić said, and the sector cannot yet calculate precisely how much higher costs would add to contracted public works prices. He said requests for increases were justified. Analyses builders received from domestic construction-material producers indicate those producers would need to raise prices by 30% or lay off workers because of higher labour costs.
Contracts spanning several years
Current construction contracts are worth more than 1 billion euros. Several large agreements signed since the start of this year cover projects scheduled to run for years, leaving contractors exposed to costs that were not included in their original bids.
In February this year, a 693 million euro contract was signed with a Chinese consortium to design and build the Mateševo–Andrijevica motorway section. The contract provides 12 months for design and four years for construction. A construction-sector source said the contractor faces labour costs well above what it could have anticipated when it submitted its bid a year earlier.
The motorway contract was concluded under EBRD rules. It is not clear whether, or to what extent, higher costs will be accepted, although a sliding scale for unforeseen costs is available under the agreement, the construction-sector source said.
In June this year, a 237 million euro contract was signed to build a section of the expressway around Budva. The main works are due to start next year and last four years. Contracts for Velje brdo Boulevard and the first phase of the Velje brdo settlement are worth 31 million euros and 40 million euros, respectively, with work on both due to last three years.
Other current public construction contracts are worth more than 150 million euros, with work scheduled to take two to three years. Builders expect cost increases after contract signing to affect large projects in particular because construction under those agreements lasts several years.
Sliding scales are used when costs rise in ways contractors could not have predicted before signing a contract or influenced themselves. Four years ago, disruption to markets following war-related events in Ukraine and mutual sanctions drove up construction-material prices. The Government accepted builders’ requests to recognise costs they could not influence, and amendments to earlier public procurement contracts raised prices in line with actual costs and invoices for more expensive materials.
Employers seek a phased increase
The Chamber of Economy of Montenegro and the Employers’ Union oppose a one-step increase in minimum wages of 60% to 110%. They proposed increases of 100 to 200 euros, which they said businesses could withstand, followed by further increases over several years in line with productivity and business revenue growth.
The Chamber has again called on Prime Minister Milojko Spajić to discuss the Euro model. It said businesses supported “increasing employees’ living standards” but that the proposed changes required dialogue and prior consultation with the business community to reach that goal sustainably.
The Government adopted the proposed legal changes 50 days ago without a public debate, consultations with businesses and trade unions, the agreement of the Social Council, or publication of studies and analyses. Builders’ plans to seek amendments depend on the Euro model being adopted; whether higher costs will be accepted under the EBRD-governed motorway contract remains unclear.
