Joining the EU - challenges ahead for construction enterprises
While no single legal framework regulates the construction sector in the EU, an increasing number of decisions taken in Brussels influence the general conditions of the building business. The most important areas affected by EU regulations are construction products, public procurement, health and safety as well as energy and the environment.
The implementation of most parts of the acquis communautaire in the area is already well under way in practically all candidate countries. There is thus no reason for construction enterprises to panic ahead of accession, despite the complicated regulations. However, the full application of all regulations will not only bring advantages to construction enterprises in accession countries; it will also considerably increase their administrative burden as additional investments in the qualification of enterprise owners and employees will be required, as well as in equipment and management systems.
Directives on construction products and equipment
The Construction Products Directive is one of the most important directives in this area and mainly affects manufacturers of construction products. The directive's basic objective is to accomplish the internal market for construction products by developing harmonised European technical specifications defining the essential requirements of construction products in areas such as mechanical resistance and stability, safety in the event of fire, hygiene, health and the environment, safety in use, protection against noise, and energy economy and heat retention.
Most of the products have to be assessed by external evaluators. Once this complicated assessment procedure is completed, the manufacturer can affix the CE mark to his product and market it throughout the European Economic Area without further national testing, certification or marking. There is just one snag. The harmonised technical specifications require the drafting of about 450 EU standards on the basis of Commission mandates to CEN and in part the EOTA (European Organisation of Technical Approvals). The standardisation work has turned out to be lengthy and very costly for all parties involved. This situation is detrimental for smaller producers and their representatives who cannot afford permanent involvement over a long period. Still, most of the work still has to be done, as only 62 harmonised standards have been published to date.
While EU manufactures are strongly represented and tailor the standards to their needs, manufacturers from the candidate countries are rarely involved in this work. This absence may cause difficulties when the application of major parts of these standards becomes obligatory for candidate countries.
Dangerous substances
The EU environmental legislation imposes a whole range of stringent rules on manufacturers and construction enterprises. The volatile organic compounds VOC Directive, which is currently under revision, is a good example of how European legislation will directly affect the competitiveness of construction enterprises. The envisaged reduction in VOC allowed in paints and varnishes will negatively affect the product quality and considerably reduce the outdoor painting season in countries with colder climate, an argument consistently put forward by UNIEP (International Employers
Organisation of painters and decorators). Furthermore, according to UNIEP, the implementation of the regulation might also engender a competition distortion that could be fatal for many small painting contractors. Indeed, the regulation foresees that only professional painters will have to respect these rules, while do-it-yourself painters will be able to buy and use more durable products with higher VOC content, helping the contractors operating in the black market.
Business opportunities through the Kyoto Protocol
Under the Kyoto Protocol the European Union adopted a strong commitment to cut its greenhouse gas emissions by 8% below 1990 levels by 2008-2012. One of the EU action target areas is the construction sector, as buildings are, by far, the largest energy consumer in our economies.
The EU strategy is summarised in the European Climate Change Programme, which proposes a number of legal initiatives to reduce greenhouse gas emissions. According to the European association of technical building contractors, CEETB, some of the initiatives offer new business opportunities for qualified construction enterprises of all sizes. This applies particularly to the directive on the promotion of electricity from renewable sources of energy and the directive on the energy efficiency of buildings. The latter will introduce energy certificates for buildings and regular inspection schemes for larger heating and air conditioning systems.
Another directive currently under preparation and dealing with the promotion of energy services is likely to increase the competitive pressure on technical building contractors. The directive aims at encouraging energy suppliers to offer energy services such as energy audits, performance contracting, installation and maintenance, energy advice, etc. The Commission now seems prepared to include more market participants in this measure. Therefore, contractors should also develop new competencies, in particular regarding energy advice and audits and, for larger enterprises, also regarding performance contracting.
Public procurement directives
Construction enterprises will face increasing competition in large public procurement projects. For all construction contracts above E5 million, tenders have to be invited from all over Europe. On the other hand, construction enterprises from the candidate countries will gain access to the public procurement markets of the existing EU countries.
In spite of this high threshold, the directive will also cover smaller enterprises when working as subcontractors for the execution of large projects, or when forming consortia with other SMEs to bid for an entire contract.
However, the EU experience has shown that only 3%-4 % of contracts are awarded to foreign bidders. Construction enterprises that wish to expand to another country usually set up a subsidiary. This trend is already visible in the candidate countries and will certainly persist in the future.
It should be noted that the public procurement directives are currently under revision. While the threshold for EU-wide tender notices is likely to be raised to E6.2 million, the revised text includes a number of provisions that may threaten construction enterprises in both the existing EU countries and the new entrants. According to the CEETB, new procurement procedures such as reverse Internet auctions, framework agreements and dynamic purchasing systems are of major concern for SMEs. Under the revised regulation, bidders may also be obliged to hold quality management or environmental management certificates - criteria that will prove to be unfeasible for many SMEs in the short term.
Health and safety at work
Considering the risk of work-related accidents and illnesses across all European states, the construction industry is one of the most dangerous sectors to work in. Various EU activities are under way to limit the exposure of workers to certain external risks. Most of the new regulations directly affect construction enterprises.
New directives were or are being implemented regarding the exposure of workers to the risks arising from asbestos, mechanical vibrations, noise, working at height and electro-magnetic fields, to name just a few. But there are a considerable number of other safety-related directives that have yet to be taken into account by construction enterprises. They cover minimum safety and health requirements at temporary or mobile construction sites, use of work equipment by workers at work, and many others. Although many of these new directives include special transitional periods for SMEs, it is still obvious that they significantly increase the administrative burden of enterprises by introducing heavy training, surveillance and recording requirements.
Social issues
The internal market will generate many business opportunities for construction enterprises from the candidate countries that may wish to develop their activities in the existing EU countries. In particular, Polish enterprises working on refurbishing historical buildings enjoy an excellent reputation. However, regulation in the field of social affairs will also add a cost to these opportunities, such as the directive on the posting of workers.
This directive will oblige enterprises from accession countries to pay at least the minimum wages of the EU country where they want to carry out construction activities. This will reduce the competitive advantage they enjoy due to low labour costs.
Furthermore, enterprises that widely use temporary workforces to top up directly employed staff during workload peaks and on fast-track projects may have problems when the future directive on working conditions for temporary workers comes into force. Such workers will have the right to working conditions while on assignment that are at least as good as those they would have if hired directly by the user firm. As it looks now, this "non-discrimination" principle would apply at the latest six weeks after the beginning of the assignment.
Undoubtedly, enlargement will offer new business opportunities and will stimulate technological change in the construction industry. But to succeed in the single market, enterprises and their associations should familiarise themselves as soon as possible with the practical effects of the future requirements.
Oliver Loebel is an expert on EU construction law and works with UEAPME (European Small and Medium Sized Enterprise Association) and the CEETB. Raphael Anspach is a junior collaborator at UEAPME.
Reference websites
Construction Products Directive:
http://europa.eu.int/comm/enterprise/construction/internal/cpd/cpd.htm
Pressure equipment directive:
http://ped.eurodyn.com/
Machinery and lifts:
http://europa.eu.int/comm/enterprise/mechan_equipment/index.htm
Dangerous substances:
http://europa.eu.int/comm/enterprise/construction/internal/dangsub/dangmain.htm
European Climate Change Programme
http://europa.eu.int/comm/environment/climat/eccp.htm
Legislation in the energy sector
http://europa.eu.int/comm/energy_transport/en/lpi_en.html
Public procurement:
http://europa.eu.int/comm/internal_market/en/index.htm
Safety at work:
http://europe.osha.eu.int/legislation/
http://europe.osha.eu.int/good_practice/sector/construction/
UEAPME:
http://www.ueapme.com
CEETB:
http://www.ceetb.org
The implementation of most parts of the acquis communautaire in the area is already well under way in practically all candidate countries. There is thus no reason for construction enterprises to panic ahead of accession, despite the complicated regulations. However, the full application of all regulations will not only bring advantages to construction enterprises in accession countries; it will also considerably increase their administrative burden as additional investments in the qualification of enterprise owners and employees will be required, as well as in equipment and management systems.
Directives on construction products and equipment
The Construction Products Directive is one of the most important directives in this area and mainly affects manufacturers of construction products. The directive's basic objective is to accomplish the internal market for construction products by developing harmonised European technical specifications defining the essential requirements of construction products in areas such as mechanical resistance and stability, safety in the event of fire, hygiene, health and the environment, safety in use, protection against noise, and energy economy and heat retention.
Most of the products have to be assessed by external evaluators. Once this complicated assessment procedure is completed, the manufacturer can affix the CE mark to his product and market it throughout the European Economic Area without further national testing, certification or marking. There is just one snag. The harmonised technical specifications require the drafting of about 450 EU standards on the basis of Commission mandates to CEN and in part the EOTA (European Organisation of Technical Approvals). The standardisation work has turned out to be lengthy and very costly for all parties involved. This situation is detrimental for smaller producers and their representatives who cannot afford permanent involvement over a long period. Still, most of the work still has to be done, as only 62 harmonised standards have been published to date.
While EU manufactures are strongly represented and tailor the standards to their needs, manufacturers from the candidate countries are rarely involved in this work. This absence may cause difficulties when the application of major parts of these standards becomes obligatory for candidate countries.
Dangerous substances
The EU environmental legislation imposes a whole range of stringent rules on manufacturers and construction enterprises. The volatile organic compounds VOC Directive, which is currently under revision, is a good example of how European legislation will directly affect the competitiveness of construction enterprises. The envisaged reduction in VOC allowed in paints and varnishes will negatively affect the product quality and considerably reduce the outdoor painting season in countries with colder climate, an argument consistently put forward by UNIEP (International Employers
Organisation of painters and decorators). Furthermore, according to UNIEP, the implementation of the regulation might also engender a competition distortion that could be fatal for many small painting contractors. Indeed, the regulation foresees that only professional painters will have to respect these rules, while do-it-yourself painters will be able to buy and use more durable products with higher VOC content, helping the contractors operating in the black market.
Business opportunities through the Kyoto Protocol
Under the Kyoto Protocol the European Union adopted a strong commitment to cut its greenhouse gas emissions by 8% below 1990 levels by 2008-2012. One of the EU action target areas is the construction sector, as buildings are, by far, the largest energy consumer in our economies.
The EU strategy is summarised in the European Climate Change Programme, which proposes a number of legal initiatives to reduce greenhouse gas emissions. According to the European association of technical building contractors, CEETB, some of the initiatives offer new business opportunities for qualified construction enterprises of all sizes. This applies particularly to the directive on the promotion of electricity from renewable sources of energy and the directive on the energy efficiency of buildings. The latter will introduce energy certificates for buildings and regular inspection schemes for larger heating and air conditioning systems.
Another directive currently under preparation and dealing with the promotion of energy services is likely to increase the competitive pressure on technical building contractors. The directive aims at encouraging energy suppliers to offer energy services such as energy audits, performance contracting, installation and maintenance, energy advice, etc. The Commission now seems prepared to include more market participants in this measure. Therefore, contractors should also develop new competencies, in particular regarding energy advice and audits and, for larger enterprises, also regarding performance contracting.
Public procurement directives
Construction enterprises will face increasing competition in large public procurement projects. For all construction contracts above E5 million, tenders have to be invited from all over Europe. On the other hand, construction enterprises from the candidate countries will gain access to the public procurement markets of the existing EU countries.
In spite of this high threshold, the directive will also cover smaller enterprises when working as subcontractors for the execution of large projects, or when forming consortia with other SMEs to bid for an entire contract.
However, the EU experience has shown that only 3%-4 % of contracts are awarded to foreign bidders. Construction enterprises that wish to expand to another country usually set up a subsidiary. This trend is already visible in the candidate countries and will certainly persist in the future.
It should be noted that the public procurement directives are currently under revision. While the threshold for EU-wide tender notices is likely to be raised to E6.2 million, the revised text includes a number of provisions that may threaten construction enterprises in both the existing EU countries and the new entrants. According to the CEETB, new procurement procedures such as reverse Internet auctions, framework agreements and dynamic purchasing systems are of major concern for SMEs. Under the revised regulation, bidders may also be obliged to hold quality management or environmental management certificates - criteria that will prove to be unfeasible for many SMEs in the short term.
Health and safety at work
Considering the risk of work-related accidents and illnesses across all European states, the construction industry is one of the most dangerous sectors to work in. Various EU activities are under way to limit the exposure of workers to certain external risks. Most of the new regulations directly affect construction enterprises.
New directives were or are being implemented regarding the exposure of workers to the risks arising from asbestos, mechanical vibrations, noise, working at height and electro-magnetic fields, to name just a few. But there are a considerable number of other safety-related directives that have yet to be taken into account by construction enterprises. They cover minimum safety and health requirements at temporary or mobile construction sites, use of work equipment by workers at work, and many others. Although many of these new directives include special transitional periods for SMEs, it is still obvious that they significantly increase the administrative burden of enterprises by introducing heavy training, surveillance and recording requirements.
Social issues
The internal market will generate many business opportunities for construction enterprises from the candidate countries that may wish to develop their activities in the existing EU countries. In particular, Polish enterprises working on refurbishing historical buildings enjoy an excellent reputation. However, regulation in the field of social affairs will also add a cost to these opportunities, such as the directive on the posting of workers.
This directive will oblige enterprises from accession countries to pay at least the minimum wages of the EU country where they want to carry out construction activities. This will reduce the competitive advantage they enjoy due to low labour costs.
Furthermore, enterprises that widely use temporary workforces to top up directly employed staff during workload peaks and on fast-track projects may have problems when the future directive on working conditions for temporary workers comes into force. Such workers will have the right to working conditions while on assignment that are at least as good as those they would have if hired directly by the user firm. As it looks now, this "non-discrimination" principle would apply at the latest six weeks after the beginning of the assignment.
Undoubtedly, enlargement will offer new business opportunities and will stimulate technological change in the construction industry. But to succeed in the single market, enterprises and their associations should familiarise themselves as soon as possible with the practical effects of the future requirements.
Oliver Loebel is an expert on EU construction law and works with UEAPME (European Small and Medium Sized Enterprise Association) and the CEETB. Raphael Anspach is a junior collaborator at UEAPME.
Reference websites
Construction Products Directive:
http://europa.eu.int/comm/enterprise/construction/internal/cpd/cpd.htm
Pressure equipment directive:
http://ped.eurodyn.com/
Machinery and lifts:
http://europa.eu.int/comm/enterprise/mechan_equipment/index.htm
Dangerous substances:
http://europa.eu.int/comm/enterprise/construction/internal/dangsub/dangmain.htm
European Climate Change Programme
http://europa.eu.int/comm/environment/climat/eccp.htm
Legislation in the energy sector
http://europa.eu.int/comm/energy_transport/en/lpi_en.html
Public procurement:
http://europa.eu.int/comm/internal_market/en/index.htm
Safety at work:
http://europe.osha.eu.int/legislation/
http://europe.osha.eu.int/good_practice/sector/construction/
UEAPME:
http://www.ueapme.com
CEETB:
http://www.ceetb.org
