Michael Moore
Romania�s new highway is faced with rising costs from right-of-way acquisition.

Managing construction costs in the emerging economies of the European Union’s newest member states poses a new set of problems for  project managers running large fast-track projects in Romania and Hungary. Construction costs there are being driven by currency fluctuations, lack of skilled workers, outdated transportation infrastructure, unrealistically low bids, over-engineering of structures, lack of familiarity with fast-track procedures and conflicting standards between the EU and the new member states.

The skilled workers shortage was cited as the number one problem confronting the managers of large projects in Romania, especially after the country became a full member of the European Union in January of 2007.

“We had to deal with a massive exodus of people from our erection crew,” says Ramiro Velasco, general project manager of Swiss cement giant Holcim’s reconstruction of an aging Communist-era cement plant. “Our erection contractor was paying the going rate for Romania, but after the first of January 2007 those workers could go to Italy or Germany and earn many times what they were being paid here, and they did just that.”

Related Links:
  • Inflation Bows to Sub-Prime Crisis
  • Inflation Cools in China, West Europe, U.S.
  • EU Membership Brings New Cost Challenges
  • Parity Index Adjusts For Exchange Rate Swings
  • Oil Sands Boom Extracts Toll on Costs
  • Complete Report with Data and Analysis
  • The visible result was that heavy structural columns for the 135-meter-high preheater tower piled up as the erection crew deserted Romania for greener pastures in other EU states.

    The erection contractor was unwill-ing to substantially increase the workers' wages, but Velasco finally solved the problem by negotiating a bonus system with the erector that would reward workers for productivity and schedule gains on the ultra fast-track project. “We are affected by the lack of skilled people,” he adds. “We needed 900 workers at the peak of our schedule and we have never had more than 700.”

    The demand for cement in Eastern Europe is so great that Holcim is busy with a large plant in Bulgaria and may start construction on another Romanian facility. The supply and demand equation is further exacerbated by a number of effective restrictions on the import of cement into the European Community from outside producers.

    The exodus of workers vexes other  managers on Romanian projects. “Our crane operator told us last Friday that he will not be at work on Monday, that he has a new job in Germany that pays him double,” says a frustrated Jean Francois Conci, operations director of Bouygues Construction Romania. “We are bringing in contract labor from China and the Philippines, but the lower wages are offset by transport and housing costs for those workers, not to mention they are less productive than the Romanians, at least in the beginning.”

    Conci is impressed with the work ethic and skills of the young Romanian engineers on his team, but he has had money problems with them as well. “They all demand to be paid in euros and after six or eight months they expect pay increases of 50%,” he says.

    Conci’s greatest frustration, one that he says costs him a lot of grief and lost schedule, is the rigidity of Romanian law on structural design and on-site supervision of concrete pours by official inspectors. “Romanian construction law is difficult to follow and not always transparent” he explains. “They follow Romanian codes, not European standards. It is difficult to use precast, and the result can be a very torturous structural design. Plus, we must have an official inspector at every pour.”

    Another variable that has made Eastern European project management an interesting job is dual currencies used by new EU members, including Hungary and Romania. Project managers contract in euros, but local suppliers and subcontractors often prefer the more familiar local currency.

    Bechtel’s Michael Mix, project manager on the 415-kilometer-long Transylvania Motorway, faces different cost problems that have a direct bearing on his project. When finished, the road will be a four-lane freeway connecting the central Romanian city of Brasov with the Hungarian border.

    Mix keeps many of his costs under control by directly performing the majority of the work. Bechtel employs over 3,000 Romanians as direct hires, while carefully qualifying the few subcontractors on the project for financial stability and reliability. “Our workforce has been stable because we pay them fairly and give them extensive training in specialized trades,” he says. “Our turnover is extremely low.”

    It seems that the greatest problem Mix and Bechtel face is keeping the project rolling. The motorway is being built in stages and the two currently in progress total a little over 56 km. The original budget for the project was 2.2 billion euros, but land costs are skyrocketing along the proposed route and the Romanian government must still acquire the right-of-way to support the construction schedule.

    The trick for Mix will be how to keep his army of workers intact and minimize costs until land for the next phase is available and ready for construction.