Should I Import Materials and Staff for my Project?

Pitfalls of bringing Staff and Construction Materials from other Countries.

Back in June, we wrote about the impact of inflation on the construction industry  and how it has been leading to price increases in materials, labour and machinery and has made it harder to accurately budget for a construction project. Unfortunately, since we wrote that post we saw inflation hit 10.5% in August, but there have been improvements and in October the National Statistics Institute revealed that Spanish consumer prices rose 8.9% year-on-year in September.

This inflation has definitely hit the construction industry hard. On the ground on the Costa del Sol, we have seen not only price increases, but also a change in the way of working from the construction companies. Previously, there would be a bidding process and client and construction company would agree a price, with a “fixed” guarantee for between 6 and 12 months. Now, we are rarely seeing a builder offering a fixed price for a project and most insist on being able to revise the price every few months to respond to price increases.

Our Project Managers in Spain are working with clients and their construction teams to come up with solutions and keep prices under control by taking quick decisions and seeing where savings can be made. We are also assisting clients who are planning new projects to create more realistic budgets, which can factor in inflation and price increases. We are also working with them to reinforce contracts which protect clients as much as possible within the new terms that construction companies are requiring.

However, even with our support, we have noticed that clients are thinking about other ways of keeping prices down and looking to other countries to source cheaper materials and labour. Many of our clients are from abroad, and so are thinking that using their home country’s labour and materials will mitigate the price hikes and somehow make the process easier and more familiar. We have been asked to support clients who want to import construction teams from abroad, ship readymade houses, or SIPs panels from other countries, or import cheaper materials from places such as China and Turkey.

While we understand this is tempting, and know how important it is to manage a budget carefully, there are a number of issues with doing this that you need to bear in mind, before making a decision.

What Issues can be caused by importing Staff and Materials?

Difficulty managing delivery schedules and people

As we all know, a construction project is comprised of many different elements and trades, which all need to coordinate perfectly to ensure you stick to schedule and costs don’t increase. There’s an order you need to bring in certain materials and trades, which can get easily out of sync. Your risk of this happening increases by using external people, or materials coming from further afield and being subject to delivery delays.

If you as the client are taking control of one aspect and bringing in materials from another country, you will need to ensure everything arrives on time, to not be blamed for delaying your own works and be subject to additional fees from the main contractor. You must also plan to pay for local storage and perhaps even a “coordination override”, payable to the constructor who will use these materials to build and may require more time to do so.

Deliveries from abroad can also be held up by customs and incur importation fees that you may not have been expecting. This has been happening a lot with deliveries coming in from the UK since Brexit and causing both delays and costs which haven’t been budgeted for.

Lack of Guarantees

There are two guarantees which protect clients who are having construction works done in Spain, which are unlikely to apply if you’re bringing materials or staff from outside the country.

There is a construction law which obliges the contractor to provide a 5% retention to guarantee the works for 12 months after delivery. If you’re bringing over a team or materials from outside of Spain, you probably won’t get this. This means that if any issues arise, you will have to chase your original supplier to fix it, or try to determine that the fault lay with the labour rather than the material. Chasing companies in another country can be hard and local companies are likely to point the finger at the imported material, rather than claim responsibility. This leaves you at risk of having to incur the costs of repairs yourself.

In addition to this, your Technical Direction team has the legal obligation to review and approve the works during the construction process and before handover. However, if you have selected materials that do not comply with local or national quality standards, they may feel unable to do so.

This same issue can impact your Decennial Insurance policy (the policy which covers the structure and stability of the building for 10 years after it was built), as it requires certain various quality control approval certifications issued by the OCT company.

Costs

As most of these decisions are being made to save money, it’s important to know that the issues above don’t just increase the risks of the project going wrong, but also can lead to higher costs than you expect. Even if you have sourced a great deal from China or Turkey, delivery costs, import duties and low volumes all push the prices up.

For those considering bringing workers from abroad, there are other costs on top of the labour to consider. You will likely be expected to pay to transport the workers, house and feed them, which can really add up over a long build time, and can be a major issue if the schedule slips. Another thing to consider is that you will likely have to create a registered company in Spain to administer all the pertinent taxes and adhere to the employment laws and payments required. This can be complicated and expensive to set up and dissolve, as well as time consuming to manage.

Low Volumes

When ordering materials for a smaller project, such as a villa development, you are unlikely to be ordering the large volumes that the suppliers are used to. This can lead to your project not receiving the attention it deserves. It also means you don’t have the bargaining power to negotiate the deals that someone ordering large volumes would have. We’ve seen clients actually paying more in this way, without having their team to be able to negotiate hard or offer incentives to known and trusted collaborators locally.

Language and cultural barriers

If you are bringing a team of workers from another country, it is often very difficult to effectively communicate with them when they are on site. They may speak the client’s language, but if any project managers, main contractors, or other trades need to speak to them it can be difficult. This leaves you at risk of things being lost in translation and mistakes happening.

They will likely have a different way of working and methodologies from the local team as well and there can be friction and frustration caused by the contrasting work cultures and styles, which can cause unforeseen delays and therefore higher costs. Also, the Health and safety Inspector will most likely be local and only speak the local language.

What does MDCI recommend?

Given all the uncertainties and potential issues mentioned above, we don’t believe this is the best choice for the vast majority of people building in Spain.

Our recommendation would be to use a general contractor for the basic “brute works” and ensure you get the best deal by undertaking a thorough bidding process with a set of competing companies. In order to ensure you get the best price, subject them to 5 rounds of revision and unitary price negotiations, and tie the winner into a watertight contract with penalties for not complying.

Everything should be based around and supported by in depth strategic analysis, including feasibility studies to make sure the budget and timeframe is realistic and no elements have been forgotten.

By doing this, and using an independent project manager to guide you through the process, you have a much better chance of controlling your costs, while minimising your risks and getting the project you had planned.

Despite the many changes in the economic outlook over the last 30 years that Mark Lawson has been involved in construction and project management, every single client has received their project on time and on budget. We’re confident that we can continue offering the same great service and cost control throughout this period of higher inflation too. Contact us today and find out how we can help you to build in Spain and avoid the pitfalls.

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