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Pitfalls of construction cost-cutting: what will total cost optimization result in?

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Pitfalls of construction cost-cutting: what will total cost optimization result in?

How will the use of the Russian analogues of some construction materials influence the construction quality: builders and experts’ opinion

Experts remind, that import replacement has always existed, but sanctions and crises have made the problem most acute. How acceptable is the use of Russian analogues and will it not result in the quality decrease? The question is not idle. First of all, for the residents, and for managing companies as well. It is very troublesome for a managing company to get an object needing capital repair from the beginning.

 

Alas, many developers now follow Louis XV, having said the famous “after us the deluge”, Ilia Mashkov, member of Board of the Moscow region Design Engineers Association, complains.   He thinks that the problem is not in import replacement as it is (of which Ministries of Construction, Housing and Utilities and Trade and Industry regularly report) but in scrupulous decrease of materials cost and quality under import replacement cover.

Realty market specialists are discussing where import replacement is really necessary, and where a Russian analogue won’t do.

Depending on an object’s class and status, the share of the used imported materials may vary greatly: in economy-class it is about 20% and is potentially decreasing to 8—10%. On average, the import replacement share both in housing and commercial realty construction may achieve 50%.  It refers to construction and finishing materials.  

On premium class objects the level of import replacement is seldom higher than 20%, though it is not so much connected with the absence of domestic quality products but with unreasonably high price proposed by their deliverers.

Pitfalls of construction cost-cutting: what will total cost optimization result in? 

What we do not have at all

Are there construction materials that are not produced in Russia at all? Of course, there are. And they are:

  • A number of natural façade materials: marble, granite, limestone, Many tints are not present in Russia, but the main thing is that the Russian stone is very porous, and so it scales off.
  • Auxiliary materials used while assembling lines and rare chemical plants (in particular, adhesives production).
  • Pumping equipment.
  • Ventilating equipment.
  • Some types of technologic and engineering equipment. As Evgeny Kyriayev, Director General of a construction company, explains, it refers to high accuracy pneumo- and hydro-equipment.
  • The range and quality of domestic ceramic tile also leave much to be desired. The import of high-quality ceramic tile of all types, mainly from Italy and Spain, equals up to 30—35% of the domestic production. According to expert Yulia Frantsuzova, Italy is the acknowledged leader in the sphere, and some Russian ceramic-producing factories not only work according to the Italian technology and on Italian equipment, but order Italian specialists to develop the design.
  • Special systems, not produced in Russia, in particular multilevel parking systems produced in Germany.

Pitfalls of construction cost-cutting: what will total cost optimization result in? 

Subject to replacement?

Experts point out some groups of materials which are being significantly replaced:

  • Before the crisis, seamless insulation on the urethane-foam basis was gaining popularity, extruded foam polystyrene on the basis of imported primary materials was widely used. Now the market has switched over to slag wool and foam plastic: they are hardly inferior to foam polystyrene as heat insulator, but are significantly cheaper.
  • Elevators. Formerly developers installed elevators of famous German and Finnish brands, managing partner of one of the holdings working on the Moscow realty market, Emil Zakhariaev, shares his standpoint.

Pitfalls of construction cost-cutting: what will total cost optimization result in?

And now in some new built houses elevators of a famous American brand are installed in expensive high quality sets (the brand has been produced in Russia for many years already).

  • Inner finishing materials. «If materials for facades finishing are replaced with the ones having the same colour and structure, the ones for inner finishing may be any, — Director General of a design and construction company, Eleonora Shalbarova, explains. — The thing is that the approach to inner finishing is on leftovers: owners are sure to redecorate the flats. The entrance group and the hall are usually decorated according to renders (3D simulation images), and wooden and plastic elements, windows, floor coverings and light systems are usually replaced by the ones produced in Russia.
  • Pipes. Formerly French pipe-lines were often used for internal downpipes, now they are replaced by Russian ones. Also domestic pipes are used now in heating systems instead of a famous German brand.
  • The same concerns translucent structures.

Children playgrounds and improvement elements. Before the crisis, many developers bought products of a famous Swedish brand, now they often order Russian analogues. But the situation is ambiguous: some developers still prefer children playgrounds produced by the leaders of the world market.  According to experts, it is done to enhance an objects’ liquidity.  

Majority of domestic products meet world standards. It refers to cement, polished glass, some types of ceramic goods, spray asbestos and some other materials.  

       However, when we speak about the impossibility of construction materials replacement (one should understand that almost everything is produced in Russia), we mean the search of comparable quality (not the absence of an analogue).

Pitfalls of construction cost-cutting: what will total cost optimization result in?

— Some branches of construction materials production (e.g. windows and doors producers) organized a quality production in Russia long ago and are able to compete. Others do not offer anything but quality decrease, Ilia Mashkov sighs.  

German clinker and similar Russian tile may not vary in appearance but have different life cycle. Roofing material – ondulin – may be bought on the Russian market in a thinner variant, that is cheaper, but it will result in lower reliability in the process of exploitation.

According to experts, domestic plastic pipes deform while heating. Fittings need additional sealing; wall panels of the Russian production have smaller range and fade quicker.

— Of course, one may carefully select shipments, return faulty goods for replacement, change deliverers, but the Russian producer must work on quality, Eleonora Shlbarova resumes.

 — We cannot use the goods of lower quality. That is why we do not reject pumping equipment, windows and doors elements, engineering systems and elevating equipment purchasing abroad, — confirms Dmitry Panteleimonov, Director of Marketing and Sales Department of a GC working in the Moscow region.

Meanwhile, it is practically impossible to compete with foreign deliverers because of the low technical level of enterprises, worn out technological equipment and absence of quality primary products. A number of enterprises have made attempts to improve their products and increase capacities for the last one or two years but it takes time and finance.

Pitfalls of construction cost-cutting: what will total cost optimization result in? 

What to save on not to lose face?

Russian producers’ import replacement is possible if a foreign company’s plant is located on the territory of Russia and production is approved according to western technologies. It adds to purchase values decrease.  There are a lot of examples of such successful localization. 

It is also possible to decrease the purchase cost via long term direct contracts with materials and equipment producers.

A number of developers install their own equipment of construction sites (mobile integrated house-building factories) producing slabs.  The domestic reinforcement is usually bought, but specialists speak on its getting more expensive (up to 30% as compared with the same period of 2015). They mainly use the domestic materials and equipment.

— Ventilation systems and plastic windows at our construction are produced in Russia. It cheapens the production almost 2.5fold, — Oksana Storozhuk, Director of a department of one of the Siberian construction companies, shares their experience. — For automatic rooms airing special hygroscopic nanovalves produced in France are installed; Polish fittings are used for ventilated facades. All the rest is manufactured from domestic materials and on Russian equipment. Thus, the share of imported materials and equipment does not exceed 10%.

Sometimes it happens that a developer explains the import replacement by cheaper Russian produce of lower quality because of intentional economy tradeoff in quality.

Pitfalls of construction cost-cutting: what will total cost optimization result in?

For example, façade panels may be painted only on the surface (they are grey inside) or in-bulk (they are also coloured inside, so do not fade). The difference in the cost of the two variants may make 3—4m roubles, but it is not more than 3% of the façade total cost. However, developers often choose the first variant as they know that the cheap façade will last the guaranteed 5 years.

In such cases we just keep hoping that the tradition of the demand for quality will slowly but steadily form in Russia. It is the only thing that may withstand the current total optimization of expenses in the construction industry.
 

Olga CHUDINOVA, Ivan TOLSTOY  

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