Tight economic times affect the amount of roads to be built in the coming year.
Before Christmas it became clear that several major road projects are put on hold in the state budget for 2023. Earlier in January, it was also known that The Norwegian Public Roads Administration postpones the development of the E18 out of Oslo.
They want to reduce the costs, which as of now are three billion kroner more expensive than first estimated.
Much of the reason comes from increased construction costs for the road construction industry.
POSTPONED: E18 from Oslo must wait due to billions in costs Photo: Javad Parsa / NTB
More expensive raw materials
This week, Statistics Norway (SSB) presented record high growth for construction costs in 2022.
Construction costs for vegan roads increased by approximately 14 percent in 2022, while operation and maintenance of Norwegian roads became approximately 13 percent more expensive in the past year.
Materials such as steel, explosives and asphalt have the biggest price increase. In one year, these prices have risen by just under 25 per cent.
JERNLOVEN: Malin Arve, professor at the Norwegian School of Economics, is critical of the road construction industry’s cost management. Photo: Bjørnar Morønning / TV 2
Professor at the Norwegian School of Economics, Malin Arve, thinks the high costs are disturbing, but not surprising:
– It is a consequence of what has happened in the last three years, especially during the corona pandemic. The costs are very high. I’m not shocked, but what we see now is disturbing, says Arve to TV 2.
She believes that it is therefore difficult to predict the cost of a road project:
– Changes in prices for asphalt and raw materials are difficult to predict. The same applies to labor costs. It is more likely that a cost gap occurs in large projects such as tunnels or buildings, explains the professor.
The “Iron Law” prevails
At the same time, she believes that the road construction industry operates with what she calls the “Iron Law”.
Malin Arve explains the iron law as follows: it is accepted and almost expected that a budget will burst on a road project.
– In order to get the project through, it is better to get a budget hit than to propose a budget that is too high. We end up investing in projects that maybe we shouldn’t. It is not economically efficient, says the professor at NHH.
In the National Transport Plan (NTP) for 2022-2033, it is stated that the developers themselves must have a priority list of road projects, rather than the transport plan itself creating the priorities.
According to the transport plan, this will ensure that good solutions are prioritized and that we will get “more for the money”.
CONTROL: Kjell Inge Davik, director of development at the Norwegian Road Administration, believes they have good cost management. Photo: Alf Simensen
The Norwegian Public Roads Administration’s director of development, Kjell Inge Davik, disagrees with the NHH professor:
– We do not recognize ourselves in the description of the “iron law”. Our projects are announced when there is a realistic budget within given management frameworks, says Davik.
More for the money
Kjell Inge Davik explains that the Government’s project model means that projects costing over one billion kroner must always go through external quality assurance.
He believes that the Norwegian Public Roads Administration is hitting the financial targets well, and that the companies tendering for the road projects also have a focus on this:
– The Swedish Road Administration feels that the industry is good at adapting its offers to cost levels. At the same time, we experience that the market makes suggestions for savings in the dialogue before and during our tenders, says the development director.
OPENING: Kjell Inge Davik (tv) expects the cord-cutting to go as normal in 2023. Here with then transport minister Ketil Solvik-Olsen at Holmestrand. Photo: Terje Bendiksby / NTB
Davik nevertheless points out that increased construction costs affect the road projects:
– We see that the price in new competitions is going up and that it has become more expensive to build a road. Since all our contracts are index-regulated, this will mean that the contractor will be compensated for increased prices for goods and services, explains Davik.
The director is nevertheless clear that you have to have two thoughts in your head at the same time:
– One of our top goals is “more for the money” and it is important that we spend a lot of time finding the right balance between price and risk in our projects, he points out.
Disagree about the future prospects
Despite the increased costs, the Norwegian Public Roads Administration must carry out its projects as planned. At least for now:
– The Norwegian Public Roads Administration makes an ongoing evaluation of the project portfolio with regard to price trends and available capacity in the market. We expect to be able to carry out planned projects and therefore have no plans to release information about possible prioritization of planned projects now, says Davik.
E6: The national budget 2023 takes over the baton from the Solberg government, when they have to prioritize three sections, including Storhove-Øyer (part of E6 Moelv – Øyer). Here at the opening of the E6 Brumunddal – Moelv. Photo: Stian Lysberg Solum / NTB
Malin Arve at the Norwegian School of Economics has little faith that there will not be further delays to road projects:
– Budgets go to things that are already underway. Then other things have to wait. There will be consequences for which projects can be started, the professor believes.
– Do you think it will affect the backlog and the efficiency of road projects?
– It can quickly do that, says Arve.
TV 2 has contacted PEAB Anlegg for comments on the increased costs and its future prospects, but could not answer the questions before the last quarterly report for 2022 is released.
