Butterfly effect. Romania’s infrastructure works hit by government measure due to higher wage costs

Sorin Melenciuc 14/06/2019 | 12:21

A government measure aiming to limit labour shortage and help construction businesses in Romania had an unexpected effect on infrastructure projects, blocking many tenders due to rising costs.

Since the beginning of this year, the government has introduced a minimum wage in construction of RON 3,000, much higher than the national minimum wage of RON 2,080, and cut income taxes for construction workers.

The measure was argued by the need to reduce the labour shortage by limiting the migration of local workers and by attracting foreign workers in Romania.

Another target was to limit the tax evasion in the sector, a problem that affects the competitivity of large construction groups.

But the measure was poorly applied as businesses and consultants warned that the regulations are not clear enough.

“The increase of the minimum gross wage to RON 3,000 will be applied exclusively to a few CAEN codes and to a few economic activities such as architecture, engineering, technical consultancy. But another article states that all construction companies should increase the minimum wage to RON 3,000,” Madalina Nicola, head of accounting and payroll at NOERR Finance & Tax, recently said, pointing out the unclear nature of the law.

“There are no additional explanations regarding the construction companies that have different main activities, but have this different CAEN codes. So, it remains unclear which employees are targeted by this measure”, she added.

Businesses also warn that the measure has a huge impact on companies’ costs.

According to a study released by consultant firm Cromwell Evan Global, the costs of construction companies have increased by 5-28 percent starting from the beginning of this year, depending on the number of employees and the share of employees paid with the national minimum wage.

Blocked tenders

The first entities to observe the effect of this rising costs are the local authorities and the state-owned road company (CNAIR).

In May, three tenders for major infrastructure works failed due to lack of offers. On 27 May, a tender for the modernization of the national road (DN) Soveja – Lepşa was cancelled because no construction company applied for the contract.

The contract was estimated by CNAIR at RON 85 million (EUR 18 million).

Two other tenders for the modernization of country roads in eastern Romania also failed in May due to the same reason: absence of offers.

In March, another tender failed in Botosani county (north-eastern Romania) despite a much higher value of the contract – RON 254 million (EUR 53 million) as the companies interested by the contract calculated that the real value is 20 percent higher.

“Unfortunately, no builder appeared at the tender that was launched. We reevaluated the works, and there is an additional amount of some RON 53 million,” Costica Macaleti, the presindent of Botosani county council, told local newspaper Monitorul de Botosani.

According to experts, the higher value of infrastructure works may limit the capacity of authorities of signing contracts due to lack of resources as the government cut during the last couple of years local budgets in order to finance its own soaring wage and pensions expenses.


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