Large construction projects in Norway

Challenges in Norway for foreign contractors

Foreign contractors have won several large road projects during the last years. From winning just one of the Norwegian Public Roads Administration’s contracts in 2009, foreign contractors won more than half only three years later, in 2012. At the same time several foreign contractors have run into problems and big challenges – some have even gone bankrupt. In this article we shall try to shed some light on some of the causes why many foreign contractors have had a rough start in the Norwegian market.

Unrealistic low prices

The Norwegian competitive tendering is often made in the way that the tender with the lowest price wins. Foreign contractors who wish to gain access to the market will therefore price themselves low – and sometimes too low.

A lower level of cost in their home country can explain why they take such a risk. A generally much higher level of wages and cost in Norway might perhaps come as a surprise to some, particularly if they have not budgeted for the guaranteed minimum wage for constructions and building workers in Norway, for the time being NOK 172.10 per hour (skilled labour) and NOK 156.60 per hour  (unskilled labour). In addition are board, lodgings and travelling expenses where accommodation is required.

The generally higher level of wages and costs in Norway can also come as a surprise for foreign contractors who have engaged Norwegian subcontractors who will work by account.

That the offered tender price can be too low can be illustrated by a company who won two contracts for road maintenance work. In one of the competitions the foreign contractor’s tender amounted to NOK 46 million, whereas the nearest competitor’s offer amounted to NOK 100 million, i.e. 2.17 x more. In the other competition the numbers were respectively NOK 69 million and NOK 123 million, i.e. 1.78 x more. In the last example the foreign contractor went bankrupt after running three years of operations in Norway with deficit.

Regulations and language

Another challenge is the lack of knowledge of Norwegian regulations and language. There are technical regulations for railway-, road- and tunnel building that must be followed, law of planning and building with accompanying sets of regulations, SHA/HMS-regulations and standard Norwegian construction contracts that are often customised to the individual project by the builder. The fact that this is all written in Norwegian makes, of course, the challenge even larger for the foreign contractors. Professional assistance should therefore be requested already in the offering phase and should be continued throughout the lifetime of the project.

As Norwegians in general are quite fluent in English verbal communication – at least compared with many other European jurisdictions – most foreign contractors have described oral and written communication with Norwegians as being very good.

Winter conditions

Working outdoors during winter sets high demands on the contractor’s side – partly as a consequence of cold temperatures, snowy/icy conditions and shorter days (polar nights in northern parts of Norway). These circumstances are easily underrated, i.a. because it also demands a high knowledge of the individual worker who shall both avoid frost damage and at the same time execute work rationally and efficiently. Additional expenses as a consequence of winter conditions cannot be claimed unless it was unexpected for the contractor that the work had to be executed during winter time.

Unnecessary differences during the project

In a long termed building and construction project there will always be differences about the content of the agreement, whether supplementary demands are justified, and so on. Even if such a difference is normal, a contractor will be best served by proposed demands that are well founded legal and factual, and that they are put forward in time according to the agreement. 

The Author

Stein Fredrik Janzon
Stein Fredrik Janzon Stein Fredrik Janzon is Partner and Head of the Construction Practice at our office in Oslo. He has vast experience working with the construction sector and his expertise spans from construction law and planning and building law to environmental law and HSE. He assists contractors, builders and developers with all stages of a building project, and is involved in contract negotiation and litigation on a regular basis. He is frequently invited to lecture on a variety of subjects within this field of law.

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