Dollar threat

A strong dollar presents a risk to Colombia’s import-dependent construction industry.

Sandra Forero, president of the Construction Chamber of Colombia (“Camacol”) opened the annual meeting of the organisation in Barranquilla by warning of the risks that a strong dollar posed to the construction sector. Forero specifically mentioned that the construction sector in the country imported 40% of construction goods which significantly elevated the planned costs for infrastructure projects, putting in danger their viability.

An executive in Colombia’s infrastructure sector confirmed, “The strength of the dollar, together with the increase in the price of copper, aluminium, steel and other materials required for construction, such as cement and sand, has meant that many of the infrastructure tender processes have been abandoned.”

Forero also called on the construction stakeholders to work in collaboration with public organisations to find flexible solutions to the immediate economic challenges. Forero’s speech was delivered a week after the Institute of Urban Development (“IDU”) of Colombia was forced to halt the USD 393,000 San Cristóbal aerial cable car project after the two European bidding companies alleged that foreign exchange fluctuations had increased initial budgeted estimates.

“Most projects are contracted with a fixed price, but tenders are now demanding a variable price. This creates uncertainty for the contractor.”

CEO, construction firm, Colombia

The future of the San Cristobal project is now unclear, as the current affairs Colombian magazine Semana revealed that, prior to the failure of the tender, the Ombudsman Office of Bogotá recommended IDU to halt the process due to potential danger of substantial additional costs. The ombudsman forewarning notice is now seen as an alert for the administration to avoid assuming reckless budgetary risks. However, Diego Sánchez, director general of IDU, affirmed that the San Cristóbal project will be completed and that the institute is already planning to launch a second tender within four months, the legally required period to re-launch a tender.

The infrastructure executive explained, “The next step of the San Cristóbal project is to carry out a budget readjustment process, adequately map the risks produced by the foreign exchange fluctuations and include contractual clauses that provide greater security to bidders. This will introduce delays but I think the project is unlikely to be cancelled entirely.”

More generally, infrastructure projects across Colombia are being re-evaluated, according to the CEO of a domestic construction firm, “Most projects are contracted with a fixed price, but tenders are now demanding a variable price. This creates uncertainty for the contractor because it will never really know, unless there is a price ceiling, how much the work is going to cost.”

“I think there will be changes in state contracting. The government has no choice but to accept a different procurement process.”

CEO, construction firm, Colombia

The government’s appetite for risk will be crucial for the development of current and new projects, which are mostly carried through public-private partnership. The construction firm CEO commented, “I think there will be changes in state contracting. The government has no choice but to accept a different procurement process. Fixed-price procurement won’t work because no one will bid in the current environment. There must be a contractual balancing clause so that in the event of an imbalance due to market or crisis issues a contractor can feel confident that it will not bear all the risk. Alternatively, the state must wait for the economy to regulate itself, which would generate a delay in the government’s pipeline of infrastructure works.”

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