A Public Threat to German Builders
June 22, 2005
The German building sector is a 240 billion euro ($288 billion) industry. Every year, prestigious projects make the headlines: extraordinary buildings add architectural glitter to the country's big cities and bold infrastructure projects show civil engineering at its best.
But there are also thousands of ordinary jobs to be taken care of -- maintaining roads and buildings, for example. In the past public authorities used to be prime customers in Germany, back in days before German reunification, when treasurers had loads of money to spend.
But those days are long gone. In recent years, construction companies, architects, engineers and tradesmen have been complaining that public investors are not keeping up with their payments. Since public authorities started tightening the belt, Germany's building sector has been in a tailspin. Several hundred thousand jobs have been cut and municipalities, federal states and the German government are jeopardizing jobs by failing to pay companies on time.
Scrambling for a slice of the cake
This year alone, German municipalities intend to invest 20 billion euros ($24 billion) in construction. Getting a slice of that cake in times of breakneck competition guarantees survival, politicians seem to think. But once their prestigious buildings have seen gala openings with VIPs and the media, the people who do the dirty work often have to run after their money.
"I have received 5,000 euros… of a total of 35,000 euros," said one man who is still waiting to get paid. "But my company has done all the work. How am I supposed to pay my employees?"
The contractor, who wished to remain anonymous, had been working on the Reichstag. Years ago, the German parliament was renovated by the world-famous architect Sir Norman Forster in a multi-billion dollar project. The contractor still hasn't seen his money, though.
Post-mortem payments
Like him, thousands of companies in Germany are waiting for payment of work that has long been done. Last year alone, 66 billion euros were paid after the agreed deadline. That's often too late for companies, said Michael Mager-Morana, an independent senior project-manager and controller of government constructions in Berlin.
"Building contractors face several problems," he said. "Their employees have to be paid in advance. In addition, financial authorities require companies to pay a 16 percent sales tax along with their invoice. That's when the vicious circle starts: The higher my invoice, the higher my advance dues to the financial authorities."
German building contractors are particularly badly affected. Traditionally, their equity capital is low. German banks hold back with credits to the building industry, particularly when public authorities are involved, since they are scared of insolvencies. And contractors' leeway to overcome financial bottlenecks for more than six months is marginal.
The German building industry's main association is annoyed: Small and medium-sized companies have full order books but their existences are threatened. According to the association's latest survey, public authorities are the prime culprits. Those who should set examples are paying their bills later than ever. Around one third of business failures are caused by late payment.
Fearing repercussions
Back at the Reichstag, the contractor wondered whether he'll ever receive the 30,000 euros owed to his company. The German parliament has tried to present a bill which would help companies to get their money quicker. But with an early election likely to take place in autumn, Justice Minister Brigitte Zypries' latest attempt to change things will likely end up in the wastepaper basket. The contractor is cynical.
"I used to get loans from my bank because I contracted for public authorities," he said. "But that was years ago. Today they just laugh when they hear that."
Still, few can afford to lodge an official complaint since public authorities still offer some of the biggest projects.