Revenues Slashed, Rising Debts, and many investments lost in recent years. The Italian construction industry is suffering a major crisis that has seen major players collapse over the last year.
By the end of 2018, Astaldi had reached a debt of EUR 2.2bn (USD 2.5bn), CMC di Ravenna was at EUR 1.6bn (USD 1.8bn) and Condotte EUR 833M (USD 931M). Even a stronghold like Maccaferri is struggling, with a debt of EUR 700M (USD 782M) on a turnover of EUR 1.3bn (USD 1.45bn). Four of the Maccaferri group companies (Seci Holdings, Seci Energia, Enerray and Exergy) required a new arrangement with creditors, which was approved by the courts in June.
Bekaert Maccaferri took a major hit with the loss of one order that was equal to its revenue. Fortunately, according to the company’s Italy sales manager Anna Bortoloussi, 2019 is going better because the group is only supplying companies that are covered by credit insurance. The approach is much safer.
Loose change
According to the National Association of Builders (ANCE), over the last 10 years Italy has lost out on EUR 69bn (USD 77bn) of national investments that were destined for the construction industry due to red tape.
For the period 2016 up to 2033 Italian construction had access to EUR 250bn of funds, but only 4 per cent of these resources have been used. ANCE president Gabriele Buia says that over the last four years EUR 4bn has been lost and the main problem is that public authorities are not able to use such funds.
When it comes to European funds, the same problem exists. Only EUR 10bn of EUR 51bn has been spent between 2014 and 2020. Behind this scenario, Buia notes the complexity of the procedures in the Italian construction industry.
“We can’t keep going in this way. If we can’t simplify procedures on top of public expenditure both public works and funds will be delayed and in turn, the whole economy will be penalised.”
According to the prime minister Giuseppe Conte, a public scheme valued above EUR 100M usually takes 15 years for authorisation, consultations and so on. The red tape drives this long procedure and impacts the whole process of tenders and execution of works.
Thus, 70 per cent of the project timeline is taken up by all the bureaucratic procedures and the remaining 30 per cent is for construction works and commissioning.
To overcome these issues, Raffaele Zurlo, Italian CEO of Brenner Base Tunnel (BBT SE), emphasises the need to stabilise the regulatory framework, which has been subject to too many changes over the years. Each government keeps making amendments to the Code of Tenders (Codice degli Appalti) and that brings a great deal of uncertainty around the industry.
Playing Politics (or the Fiddle)
The recent political instability has not aided the construction industry. Over the last year, the coalition between the Five Star Movement (a populist party) and the League (a right-wing party) failed to converge upon a clear infrastructure plan.
The Five Star Movement is opposed to infrastructure such as the Lyon-Turin rail link (TAV), while the League has expressed its support. After 14 months, the disagreements came to a head as the Five Star Movement tried to block plans for TAV.
The League has presented a censure motion against prime minister Conte with a date for the vote to be scheduled.
Thus, it is not simply financial difficulties that dog Italy’s construction sector, it is politicking with infrastructure as the tool.
ANCE has made a survey of existing public works and has found that almost 600 projects have become blocked, for a total value of EUR 53bn. Of these, some EUR 51bn covers large schemes, while EUR 2bn is for small-to-medium schemes.
Following the survey, ANCE has declared that Italy is in a ‘code red’ situation, with collapsing companies, blocked and interrupted infrastructure, missing maintenance programmes and jobsites that cannot easily be set up.
To overcome this situation, the government approved “Sblocca Cantieri” decree on 17 June, which includes urgent measures to re-launch the public contracts and to speed the infrastructure process up.
This decree comes with the set up of Italia Infrastrutture Spa to support the design and management of tenders and procedures to kick start works and support them until completion. This company has a wholly public shareholding capital of EUR 10M and it will start working in September.
Notably, the decree has re-introduced a restriction on subcontracting to 40 per cent of the project value until 2020, but not everyone approves.
“I think this is overly restrictive,” says Buia. “It will bring uncertainty amongst companies, especially because public authorities have to evaluate the organisational skills of each company.
“In the whole European market there isn’t such a restrictive limitation; subcontracting is completely free and organisational skills are evaluated accordingly. We hoped to have such freedom in subcontracting but our desire has not been fulfilled.”
ANCE also asked for an abuse of power damages clause, but this request was not included.
Buia adds commissioners/inspectors have been suspended until 2020 even though they wanted them to ensure a better transparency during tenders. He hopes there will be the possibility to reconsider such roles in the near future.
Former Minister of Infrastructure (2001-2006) Pietro Lunardi urges that the subcontracting process need to be carefully checked.
Lunardi explains during his ministerial role many projects, worth EUR 15bn per year, were set up, and he decided to divide Italy into nine ‘macro-regions’.
An officer responsible for each macro-region was appointed to work as an inspector to check several aspects on site. These inspectors had to report to the Minister on whether everything was happening according to the law or not.
Lunardi adds: “For major works I made an agreement with Minister of Justice and Home Office to set up a worksite station for police and financial police (customs) to check the development of contracts and sub-contracts from the early stages up to the end.”
An example is the 400km-long Salerno-Reggio Calabria highway, which required 77 jobsites. That means 77 chances of Mafia leaks. Thus, Lunardi slashed 77 jobsites down to six macro lots (sites). Instead of divisions of 2km of highway, each site had to build 20km so that one inspector could carefully monitor each lot, which had the posts of police and financial police. “Everything went well and works were finished in only three years, among the Calabrian mountains,” Lunardi says. “Now the government needs to create an appropriate network of controls with high level inspectors.”
Brenner Base Tunnel’s Raffaele Zurlo expresses his disapproval over what he sees as excessive liberalisation of subcontracts, as in his eyes it leads to main contractors who are not skilled at the job, resulting in delays and cost overruns.
Zurlo hopes to see the restriction tightened from 40 per cent down to 20-25 per cent in the hopes of improving the quality of works, as well as reducing the potential for corruption to creep into major schemes.
“After winning the contract to build a tunnel, it’s unacceptable that a contractor assigns the excavation and lining to a third company like it was the winner of the contract. The legislation allows this, but it’s totally unfair and risky.”
Corruption and Complexity
According to the Transparency International index, Italy is in 53rd place followed by Slovakia, Greece and Bulgaria. A rank of 0 is an indication that the country’s public sector is highly corrupt, while 100 is very clean.
Italians are disappointed about this result and they wonder how the ninth most powerful country in the world can accept it. As a result, a new anti-corruption law has been introduced in January 2019 to prevent corruption within public administration.
Corruption is also a common problem within the construction sector.
When asked about how this law could help the construction industry, Lunardi says: “We don’t need a new law. Actually, we need fewer regulations. We have too much red tape that obstructs the industry. Transparency can be automatic, if you work in the right way. For example, my work in Calabria.
“The timing of projects is closely related to the quality of the design. If projects are well designed, they don’t need to be amended during construction. Thus, you avoid delays and additional costs. Corruption comes when there are big delays during tendering or the design phases, and mostly when works are stopped.”
Zurlo agrees that the problem is not within the legislation but towards the lack of skills in applying laws. When you come across a low expertise, works are usually delayed, also resulting in cost increases.
Anna Bortolussi of Bekaert Maccaferri adds that the main problem in Italy is the “slow system of justice”. She adds, “We don’t need any new laws or more restrictive regulations but we have to make work out what we already have in place.”
ANCE aims to work closely to public authorities, which are not able to understand the highly complex Code of Tenders (Codice degli Appalti). ANCE lobbying for simplified regulations for this reason.
Buia adds if the government regulate (legislate) only against corruption, this framework will obstruct the job of companies, which obey the rules.
“The government only needs to return doing checks during tenders, acting with inspection bodies when required,” Buia says. “We need to think how to protect legality and not to penalise it.”
The Solution?
Lunardi hopes that after the European elections, Italy will be on track again with a clear plan for infrastructure.
“We need to start with the Lisbon-Kiev corridor, which is one of the most important because it spans from Europe from east to west,” says Lunardi.
“Without giving continuity to this corridor, we can’t ensure the full trade and movements of goods in Europe. It’s important to connect Italy to the rest of Europe because Alps are always a physical barrier with other European countries. If we can’t do Turin-Lion, we can’t complete this corridor.”
Zurlo adds that if Italy is able to overcome this political impasse and to get a clearer regulatory framework, the country has all the resources to pull itself out of crisis and grow again.
“I am very optimistic that we can do it,” Zurlo says. “My optimism comes from good experiences on the Brenner Base tunnel.
“The project is going ahead with no issues or delays so far. We are on schedule and within budget [showing that the current legislation and framework is sufficient for success]. Zurlo adds that the decree 50/2016 launched by the previous government aimed to create central purchasing bodies that would be skilled enough to organise tenders on behalf of local authorities or other small entities, which are not able to do the job themselves. The rejection of this measure led to inexpert tendering and a large number of appeals, resulting in many public works being on hold.
Final thought
The road to Italy’s recovery seems long and harsh. The appeal needs to be made to the coming generations, who need to understand the value of infrastructure. Unfortunately, Italian children and young people are too often used to hearing that infrastructure means corruption. It is essential to push the message that infrastructure means life, the connection of people and the movement of goods.
However, Italians have a role model. During WTC 2019 the Italian Tunnelling Society showed how the Romans were able to build robust, reliable and beautiful infrastructure. How great it would be if Italy were able to renew and build on this heritage.
