Prices rise and fall. And right now they’re steadily going up. But you don’t notice much if you, as a subcontractor, have entered into a fixed price agreement with a customer. This can be concretely seen with the haulage company De Grønne Busser, which has a contract – at a fixed price – for crew driving on the construction site in Rødbyhavn in addition to a number of municipal tasks:
In the first half of this year, we had somewhat less earnings, says Rene Bjarne Knudsen, director of De grønne Busser.
He emphasizes, however, that he is not unhappy with the contract with FLC and that it was adjusted up by 1/7 in the index adjustment after the first half of this year.
More expensive diesel and tires
The background for the sad development is the massive price increases – especially for fuel – since the beginning of 2022. In April 2020, you could fill up one liter of diesel for DKK 8.69. Today it costs DKK 14.19. And it is not just fuel that has risen significantly in price since the haulier from Væggerløse gave his offers at a fixed price:
I just bought new tires. They used to cost around DKK 2,000, and now I had to pay 3,500 – that really adds up when you have to buy 40-50 pieces, says Rene Knudsen.
The bill cannot be passed on
The problem is that the haulier – and other sub-suppliers on fixed-price contracts – cannot immediately pass on the additional cost to the customer, since the contract is precisely at a fixed price. The agreement certainly includes the possibility of indexation, but it does not propose an approximation. The price index from Statistics Denmark, which is the index that is regulated, does not come close to the real price increases. And the sad news is that there isn’t much you can do about it. This is what Lasse Lundqvist, who is an analyst at SMVdanmark, the umbrella organization for small and medium-sized enterprises in Denmark, tells us:
It is incredibly unfortunate, but there is not much you can do – other than talking about the unfair situation with the customer. Every third of our members’ turnover is tied to fixed-price contracts, and this is often a requirement when the tasks are given. It is a huge challenge, and it is completely absurd, says Lasse Lundqvist.
Must think about it
SMVdanmark calls on Statistics Denmark to do more work to continuously adjust the price index, so that the small sub-suppliers at least do not have to wait so long for the regulation that will take place after all. And otherwise check carefully before signing a fixed price agreement:
It is up to the individual to assess how much they want to risk. And you have to think it through, says Lasse Lundqvist.
Price set after 2015 index
Femern A/S, which is the state’s developer for the Fehmarn link, states that they are also affected by the price increases, but that they expect that for the suppliers it will balance out over time:
The Fehmarn project is of course also affected by current societal crises. We have a fixed price contract with our main contractors, which is set according to 2015 prices. That price is adjusted based on an index, and therefore rising prices also mean additional costs for us. With a long construction period, temporary increases will most often be leveled out over time, while more permanent increases in price levels of, for example, energy and raw materials will be reflected in the construction costs, writes Femern A/S in an email response to FemernReport.
