Regional Analysis 2020 Europe

In Europe, the public health impacts of COVID-19 have been significant, and the resulting lockdowns have seen economic activity plummet.

12%

EU contraction in Q2

-0.2%

Inflation in August

51.6

PMI in the eurozone in August

Europe Market Review

As we near the final quarter of 2020 and begin to realise the ‘new normal’ of COVID-19, Giles Heather, Associate Director at Linesight, reviews the European economic and construction industry performances to date, and what we can expect in the coming months.

Economic performance

COVID has hit Europe particularly hard, as a number of countries have struggled to suppress and control the virus. The public health impacts have been significant, and the resulting lockdowns have seen economic activity plummet. Eurostat announced that the EU had recorded an 11.9% contraction in Q2, compared to 12.1% in the eurozone. Spain, Portugal and France had the steepest declines, at 18.5%, 14.1% and 13.8% respectively.

Year-on-year, the quarterly figures were down 15% in the eurozone and 14.4% in the EU, marking the sharpest declines since time series started in 1995.

Although many European countries looked to be making a recovery in July, as lockdown and restrictions were lifted, a marked slowdown was seen in August as COVID cases rose again in some countries, with the eurozone PMI dropping from 54.9 to 51.6.

Although the European Central Bank acted quickly upon the onset of the virus, with significant stimuli put in place to prop up the regional economy, it now appears that even more stimuli will be required from the ECB to tackle the disinflationary impact.

Inflation in the eurozone was negative in August for the first time in over four years, with a figure of -0.2% recorded across the 19 countries, well below the ECB’s target of 2%. While it is hoped that this is relatively temporary and that a rebound is in the near future, Brexit remains a significant risk, in addition to the pandemic.

Labour force

The most recent figures available indicate that employment in the EU hit 12.8 million in July, an increase of 336,000 (2.6%) on the previous month. That brought the seasonally-adjusted unemployment rate from 7.1% in June to 7.2% in July, with figures of 7.7% and 7.9% respectively for the eurozone.

Construction

The impact of COVID-19 on construction in Europe has been severe, albeit difficult to draw too many broad conclusions given the diversity across the region and the varying performances.

The most recent Eurostat figures show a month-on-month increase of 2.9% in construction production for the EU in June, down 5.8% on the same period in the previous year. This is still just 93.3% of the level of activity recorded in February, despite the recent growth. Building construction was up 3.2% in June compared to the previous month, compared with 1.8% for civil engineering. Overall, the general consensus is construction output in Europe in 2020 will be down 20% on 2019 figures, and down between 10%-15% in 2021, again compared to 2019 figures.

It is worth comparing the current crisis to the previous global downturn, in which the index for total construction in the EU declined by 6.9 points in the February to April 2008 period, followed by five years of a general downward trend (despite occasional increases), with a total fall of approximately 33 points. Although there was a marked recovery thereafter, it had not hit the former peak of 128.1 points since. Between February and April 2020, however, the construction index had dropped by almost 29 points in the EU.

Overall, the RICS Europe Construction Monitor points to a challenging near-term backdrop for the industry. The construction activity index for the region stood at -25 in Q2, and unsurprisingly given the abovementioned economic performance, Spain and France were amongst the worst performers.

Europe construction output vs. real GDP

Summary

Overall, COVID-19 has undoubtedly taken its toll on Europe, on both the economy and the construction industry, with many European countries hit hard by the pandemic. While some are faring better than others, the outlook for the near future is subdued.

This section includes:

EU labour costs in construction

EU inflation

Forecast of Europe GDP - annual % change

Below, the * symbol denotes graphs/data last updated in March, and so the impact of COVID-19 is not accounted for in the marked items.

EU labour costs in construction 2020

EU inflation 2019 *

Forecast Europe GDP annual % change 2020–2021

This section includes:

Index of production in the European construction sector

Construction cost - new residential buildings index

Below, the * symbol denotes graphs/data last updated in March, and so the impact of COVID-19 is not accounted for in the marked items.

Index of production in the European construction sector *

Construction cost - new residential building index *

Below, the * symbol denotes graphs/data last updated in March, and so the impact of COVID-19 is not accounted for in the marked items.

Top 15 European contractors *

Top 15 European design firms *

EU procurement fact sheet

Definition

Public procurement is the purchase of goods, works or services by contracting authorities1.

Drivers for change of the rules

The rationale behind the EU Procurement Rules 2014 and the Irish implementation of the Regulations in 2016 was to:

Simplify and streamline procurement
Modernise the process and make it more flexible
Give better access to EU procurement markets, and in particular, enhance opportunities for SMEs
Supporting innovation and the possibility of focusing more on the EU objectives of environmental protection, sustainability and social inclusion, rather than solely on best value in price terms.

The principal changes in the 2014 rules

Concessions2 get a new separate EU Directive
All communication and information exchange for
above-threshold procurement, including electronic submission of
pre-qualification questionnaires, tenders and “call offs” under framework agreements, must be carried out using electronic means of communication
Additional grounds for disqualification of tenderers, but they can self-clean and get back into the process
Preliminary market consultations are better defined
Most economically advantageous is the only means of awarding a contract
Rules for in-house, vertical and horizontal inter-authority cooperation
Self-capacity declarations for minimum required standards and standard questionnaire for some repetitive selection criteria
Distinction between Types A and B services removed but there is now a ‘Light Touch’ regime for social, health, cultural and assimilated services. The requirements are considerably less onerous than the full EU procurement regime
New and altered award procedures
Reduced timescales
Promotion of innovation
Conflicts of interest rules
Codification of rules and exemptions for modifications to existing contracts
More onerous reporting requirements (Regulation 84),
Local and regional authorities allowed more flexibility.

What contracts are subject to EU public procurement?

Low-value contracts (below EU threshold) that could have cross (EU) border interest are subject to the rules of the Treaty on the Functioning of the European Union, i.e. must respect:

Transparency Advertising and being open with the process
Equal and fair treatment
Non-discrimination
Proportionality
Mutual recognition of standards

There are values expressed in government policy, below which contracts are generally not considered to be of cross border interest. The contracting authority should assure itself that there are no circumstances that would suggest otherwise for a particular low-value contract.

High-value contracts are those where the genuine value exceeds the EU thresholds (either an individual contract, several contracts that make up a project, or a four-year valuation for longer-term arrangements without a defined contract price). All contracts falling into this category are subject to the full EU procurement regime.

The thresholds

The thresholds, which exclude VAT, are revised every two years (next revision 1st January 2022), with the below applying from 1st January 2020 to 31st December 2021.

Times

Award procedures

For normal competitive procurements, one of the following procedures must be used - either normal timescale or accelerated timescale if applicable and justified.

Open - free choice, T: 35 days

All interested parties can submit a tender
No negotiation with bidders is permitted
Suitable where tenders will be easy to evaluate.

Restricted (free choice subject to government policy), EoI : 30 days, T:30 days

Interested parties can submit an expression of interest
Only those meeting the contracting authority’s
prequalification or selection criteria will be invited to submit a tender, and may be further limited by the application of transparent and objective scoring system
A minimum of five suppliers must be invited to tender provided sufficient qualified firms apply
Negotiation with bidders is not permitted, just clarification and finalisation of terms.

Competitive dialogue - justified when an essential element of the competition cannot be adequately defined, EoI: 30 days, T: not prescribed

Interested parties meeting the contracting authority’s prequalification or selection criteria may be invited to participate in dialogue with the contracting authority.
A minimum of three suppliers must be invited to dialogue provided sufficient qualified firms apply. The contracting authority enters into a dialogue with bidders to develop one or more suitable solutions to meet its needs
When one or more appropriate solutions have been identified, the dialogue phase concludes and final tenders are invited.

Competitive procedure with negotiation - justified when an essential element of the competition cannot be adequately defined, EoI: 30 days, T: 30 days

Interested parties, which meet the contracting authority’s selection criteria, may be invited to negotiate the terms of the contract.
A minimum of three suppliers must be invited to submit initial tenders provided sufficient qualified firms apply. The contracting authority may award the contract based on initial tender (if the contract notice allows for this) or enter into negotiation with bidders on the basis of the initial tenders.

Innovation partnership - justified when there is a need for a solution that is currently genuinely not available on the market, EoI:30 days, T: not prescribed

The establishment of a structured partnership with the aim of developing an innovative product, works or service which will be subsequently purchased by the contracting authority; so long as the supplier has complied with the agreed performance levels and costs
Normally a minimum number of three suppliers would be invited to compete.