preloader logo

Konstantin Skonechny, PERIMETER: The construction market is undergoing the most severe stress test imaginable, but the "patient" is alive and recovering.

The beginning of the full-scale war became a stress test for the entire country. While it became evident relatively quickly that Ukraine could withstand the challenges of the conflict, the question of business survival remained open for a considerable period.

The surge in the dollar exchange rate, disruptions in logistic chains, regular shelling, unemployment, workforce migration, significant income drops for individuals, and blackout events, among other factors, provided little hope for business survival. However, time has shown that markets adapted to the existing challenges. The construction market, which was predicted to collapse entirely, proved to be resilient. Large developers had a better chance of survival due to financial cushions, but small construction companies had much fewer prospects. What helped them endure, what crisis decisions did they make, and what perspectives do they see in the future? Konstantin Skonechny, the founder and CEO of the PERIMETER group of companies, shares insights.

It's been almost two years since the start of the full-scale war in Ukraine. From February 24, 2022, most experts predicted a complete halt to the construction market. However, as we can see, the market has survived, although it continues to grapple with incredible difficulties. So is the "patient" still alive?

After February 24, 2022, the country's construction market underwent the most challenging stress test imaginable. This was associated not only with a drastic change in demand for both residential and commercial real estate but also with fluctuations in the closely connected financial market – it's crucial to note that over 80% of projects in Ukraine rely on credit resources.

And now, after months of heroic resistance from the entire country – the titanic efforts of defense forces, the dedicated and hazardous work of our energy sector, the professionalism of the banking sector's employees, and many other directions in both the public and private sectors of the economy – we can confidently state that the "patient" is alive.

Recently, an interesting analytical report by Gradus Research was released, indicating that over 50% of businesses in Ukraine are already operating in a completely normal mode, with only 7% having suspended operations, and this percentage is constantly decreasing. Therefore, the economy is working, and accordingly, the construction sector is working. Moreover, more than 66% of construction company managers, according to KPMG's survey, have an optimistic view of the industry's development in the coming years.

Why? We already see that the vast majority of businesses emerged victorious in the face of literal darkness, and foreign companies are starting to return to Ukraine almost in full force. To meet the growing demand for commercial real estate, which is slowly but steadily increasing, owners of shopping and business centers are initiating processes of renovation, reconstruction, and object rebuilding. They understand that while financial resources are crucial, they may find themselves in a situation of total shortage of qualified builders and architects engaged in other projects. In Ukraine, about 25 large shopping and entertainment centers were damaged, and reconstruction works are at various stages on over 15 of them. Additionally, there are shopping centers that were supposed to open in 2022, but the war adjusted all plans – over 600,000 square meters of commercial real estate of various readiness levels. Several damaged business centers are also in different stages of reconstruction, and there are active projects in the western part of Ukraine, where 7 new business centers opened in almost two years. This doesn't even include ongoing projects by charitable donors and funds contributing to the reconstruction of our country – under the NEFCO auspices, a series of projects for creating new residential quarters is currently underway in more than 10 cities in Ukraine. There are also dozens of projects with ongoing tenders right now. So, companies with the appropriate qualifications, experience, and resources have more than enough work and will continue to have it.

Our company's current project portfolio has undergone significant changes. In addition to general contracting services, we've established a project department, recognizing that, for most clients, addressing construction issues can start at the project development stage. If, before the full-scale invasion, our work primarily involved office real estate, we are now concurrently implementing several construction and architectural projects across diverse segments. These range from redesigning well-known gas station networks to the reconstruction of healthcare facilities and the construction of various commercial projects. We've also ventured into a new form of assistance for our country—PERIMETER helps attract investments for the construction/reconstruction of social infrastructure objects in different regions of Ukraine.

Indeed, the rehabilitation period will be long and complex. While predictions for the recovery of residential property can be made, ranging from 7-8 years depending on the stage of optimism and financial support from partners, commercial real estate should be evaluated not only for damaged objects but also for the income not earned from these projects, which could have been fully operational. This sum will reach tens of billions of dollars. All market participants will have to completely change their way of life—business ethics and processes in general—start adjusting the ration with constant tracking of clear operational and strategic management of all processes, transparent reporting, continually improving qualifications, and enhancing administrative skills. Adopting leading global practices in design, production, and construction will also become crucial.

What changes in behavioral models of market participants do you already observe? The expansion of supply chains for building materials and the lack of an adequate number of qualified workers pose risks of delayed project implementation. Thus, skills related to project management and rapid adaptation of project solutions take precedence. Currently, priorities for development in all established construction companies are quite similar: maximal digitalization of processes leading to the acceleration of decision-making for both clients and contractors and the absence of "downtime" on the site.

Before the full-scale invasion, PERIMETER initiated the deployment of a CRM system for project management at all stages of construction and design. The main benefit of implementing the system began to manifest after launching the first reconstruction projects and reviving commercial projects and business centers. We started providing clients with access to all information about their projects: the status and stages of each type of work, cost estimates, reports, the process of development and approval of project decisions. Thanks to transparent pricing for all work, real-time project status tracking, information about the project stage, personnel involved, key decision-making points, materials availability, or specific specifications for already developed solutions—we not only stayed in the market but also gained new strategic clients from segments we hadn't worked with before.

Today, construction companies compete not only in terms of price. In a single meeting or proposal, you must demonstrate your team's expertise and professionalism, present capabilities, showcase implemented cases, and provide documentary evidence of all your actions. This is a necessity. Those who did not embark on digital business systematization, did not work on automation, and most importantly, the systematization of all processes, from preparing preliminary estimates and forming a project team to defining fundamental decisions and materials, to signing completion certificates and undergoing technical supervision with obtaining all the relevant signatures, will simply not have a place in the market.

Moreover, this trend is relevant not only for the commercial sector. International institutions or funds, such as NEFCO, the Red Cross, and the UNDP, working on projects for the reconstruction of destroyed buildings and facilities, have very stringent requirements for qualifications and proven experience. It is impossible to completely reform a business overnight or in two days and become a systematic company with adjusted business processes. The market demands an equal level of organization from all players, and there simply wouldn't be room for the corruption component.

Speaking of the corruption component in the public sector: either by ourselves or through the "insistence" of partners and donors, we will achieve a certain level of automation and genuinely transparent tenders. This will happen following the example of existing and proven methodologies and procedures employed by the mentioned donors and leading European companies.

Everything has already been invented before us—we just need to meet the requirements. But this is also a tremendous amount of work.

What challenges did your company face after February 24, and what crisis management steps did you take?

We entered full-scale war during the final stages of three major projects, involving over 100 people working simultaneously. Overnight, we found ourselves needing to address numerous issues, the most critical being how to avoid halting crucial construction processes. We had to resolve issues related to replacing key equipment suppliers, settling accounts with contractors and staff, ensuring safety on the construction sites, and much more. Fortunately, we persevered, successfully closing all projects according to contractual agreements, completing construction, and delivering the projects to clients by the agreed-upon dates.

I want to emphasize the uniqueness of the Ukrainian nation and express unconditional respect for our people. Despite being in a country at war, with cities under bombardment and a critical situation, clients stayed in touch, work-related issues were resolved rapidly, and everyone understood that if we didn't finish the projects now, we might not return to them. Funding did not cease, work did not stop, and projects were completed precisely. I understand that not all companies had the opportunity to adequately finish/suspend projects, so we were indeed fortunate, both with clients and the personnel who returned to their duties the day after the declaration of full-scale war.

After a relative stabilization of the situation in Kyiv around the summer of 2022, our team conducted a detailed review of the situation. We assessed what was done correctly, what needed adjustments, and what we needed to do to continue operating in the market, etc. The main conclusion was that if we hadn't started the transition to creating a unified digital ecosystem for projects two years ago, encompassing all protocols, data, contacts, and procedures for tracking all stages of construction work, we would have simply disappeared. A systematic construction business must be able to extract absolutely any information about the real state of all processes and stages of completion, contacts, material quantities, and personnel required to finish a project at any moment. We proved this to both clients and ourselves through a high degree of digitalization. In a very short time frame, we were able to "rebuild" our supply chain for materials based on the decisions available in the market in the required quantity and at a reasonable price, ensuring the staffing of ongoing projects. My main takeaway is that those who do not have a representation of their business in "digits" will vanish from the market.

Does your company participate in projects to rebuild infrastructure damaged by the war?

Over nearly two years, PERIMETER has significantly expanded its activities. We completed a variety of projects in new directions, including reconstruction. Given what Irpin went through, when we started the reconstruction project of School No. 12 named after Zarifa Aliyeva, funded by the SOCAR gas station network, our team dedicated all its efforts and capabilities to ensure that children could return to their school by September 1. The building itself sustained direct hits from Grad multiple rocket launchers, the roof of the sports hall was completely penetrated, rooms were flooded, and facades were destroyed. In a record-breaking 45 days, we completed all reconstruction work: general construction work, classroom and facade repairs, partial replacement of damaged networks. The students and teachers held the first bell ceremony in a completely renovated school. And this school in Irpin is not our only reconstruction project.

This leads us to one of the most promising directions in our activities—cooperation with international organizations and funds for the reconstruction of affected regions and the creation of modern social facilities in areas hosting internally displaced persons (IDPs).

At the onset of the invasion, we made it clear to ourselves that we would help the state in any way we could. This led to the collaboration with one of the leading Ukrainian developers, resulting in the creation of a new product for our construction market called "Reconstruction 360." It offers a range of services for the comprehensive support of construction projects, aimed at providing the client with a single point of contact at all stages of implementation. Rather than reinventing the wheel, PERIMETER adopted the best European practices and implemented them in its activities—tendering protocols and procurement procedures according to FIDIC, executing construction contracts based on EPC/EPCM terms, developing a project management office to provide comprehensive PMC services, and more. This direction has proven to be extremely relevant for international organizations, which have high transparency requirements for general contractors, and the qualification and verification process for tender participants takes several months. We are currently in the final stages of negotiations for the construction of several projects for international organizations, so the big announcements will come a bit later.

In addition to our regular commercial activities, we dedicate a significant amount of time to volunteering and assisting those affected. PERIMETER is an official partner of the charitable foundation "Nadiya," a youth initiative. Together, we consistently provide medical supplies to the most affected regions of Ukraine. Recently, we also assisted in organizing the collection and delivery of the only MRI machine for the entire region to Kramatorsk. Furthermore, we assist NGOs and municipal administrations in attracting investments for their social projects. Leveraging our expertise, we evaluate underconstructed or damaged facilities, develop cost estimates, compile investment portfolios, and attract investors and funds for the reconstruction of these projects.

As you can see, these almost two years have been a stress test not only for the country but also for our business. I am openly proud of how we overcame challenges, and I see that all decisions regarding the company's development were the right ones.

What other unconventional and atypical projects have you started implementing?

We initiated a project for the renovation of a well-known gas station network. This significantly expanded our architectural department, as a large part of the work involved finding optimal technical and engineering solutions. Our experience in implementing and designing retail projects came in handy, as modern gas stations are intended to be places not only for refueling but also comfortable environments for meetings (as we remember during blackouts). They are designed to offer a gastronomic choice and provide additional services depending on the location. Overall, this is a very interesting experience, and soon the market will be able to evaluate our work.

To what extent has the market professionally conducted itself with the onset of full-scale war? We are aware of quite a few unpleasant stories...

In general, all market participants, especially small and medium-sized companies, tried to behave honestly and help each other. We are all human, we all understand the situation, and we are capable of dialogue and compromises. Personally, I was disappointed by some major developers.

Before the war, as a contractor, we took on a fairly large order from one of Kyiv's developers. This was a massive project that we completed on time, just before the full-scale invasion. However, we did not receive timely payment for our work. After February 24, the company explicitly stated that it had no intention of settling its debts, citing the war and the suspension of economic activities. Yet, there are a few nuances to consider. Firstly, this developer continues to operate: some projects are being completed, new constructions are starting, and real estate is being sold, all accompanied by ongoing advertising campaigns. Secondly, inflation and the overall increase in construction material costs would simply erode this amount, even if the company eventually agrees to pay voluntarily. Not to mention the reputational losses our company suffered due to this situation, and the costs that have and will continue to accrue due to our inability to settle payments promptly with our subcontractors on this project.

We tried to resolve this issue amicably on numerous occasions. However, when warned that the only way to receive our honestly earned money, aside from going to court (which we wanted to avoid), was through direct threats, we had no choice. We received direct threats to our address, promising to destroy our reputation and tell the entire market that our company is fraudulent. Ironically, these actions align more with the behavior of the developer. It's disheartening to see a large and well-known company reluctant to pay for the work but willing to spend money on negative PR against those to whom they owe. However, after these threats, there is no turning back for us. Now, we will inevitably resort to legal action. Our position is rock solid, and if this company doesn't utilize all its connections and resources to influence the court, which we know they are capable of, we will win the case 100%. I suspect it will be a noisy affair, but we are prepared for it.

Is this situation an isolated case or a systemic issue?

In our case, it is an isolated incident.

How do you assess the prospects of the construction market after our victory?

Let's be frank: the primary driver of economic development, reconstruction, progress, and innovation is business. Once businesses see the conditions for full state support of reconstruction, the process will kick into gear. Currently, we face a situation where a company can navigate all challenges, receive over 90% of possible points, and secure a contract for construction works from the strictest clients. However, the same company might be deemed unqualified for even the simplest construction tasks in the recently affected satellite cities around Kyiv. And yes, we say this from our own experience.

Corruption, lack of transparency in procedures, and bureaucratic hurdles in the initiation of construction projects in affected or recently liberated regions are the main reasons for the slow progress of the nationwide reconstruction.

Consider this: in Ukraine, the damaged housing stock exceeds $54 billion, comprising over 18,000 multi-apartment buildings and more than 144,000 private houses. Infrastructure damage amounts to over $36.2 billion, with losses to industrial assets exceeding $11.4 billion. In this situation, our economy demonstrates remarkable resilience, but we simply lack the resources for a truly large-scale or serial reconstruction program. Donors and funds are helping, but their projects are focal solutions designed to provide the initial impetus for a comprehensive construction program. It's unrealistic to expect someone else to solve all our problems. Until we develop a well-thought-out reconstruction strategy with a clear financial plan, a map of damages, and a transparent estimate for specific objects, rapid reconstruction is unlikely. Personally, I have high expectations for the Reconstruction Agency and its initiatives, such as creating a registry of damaged objects, but there are currently more questions than answers. So, we return to business and why it should be the driving force.

Understanding all this, PERIMETER has opened its front—we started collaborating with municipal administrations and the Reconstruction Agency to quickly rebuild or reconstruct objects crucial to society. We've noticed that officials often lack the expertise needed to assess damages accurately, create estimates for restoration construction, and attract investors or refine existing projects. That's why we are currently implementing a project to optimize and attract investments for a western region, where there is a significant concentration of conflict-affected areas. The project involves the construction and reconstruction of two medical facilities and the establishment of a modern preschool institution. We quickly realized that the most effective way to help the state and secure our own work is to assist in creating investment proposals, develop optimal reconstruction options, and provide comprehensive consultation to local authorities based on advanced international practices. Business must become the backbone for the state and set the tone for all future processes. This is precisely what we are demonstrating.

The future for construction companies in the commercial sector will depend on the efficiency of the administrative staff—estimators, project managers, and directors. They must set trends in shaping the post-war market: clearly define construction volumes, ensure full pricing transparency, and enable access to monitoring at any project stage. Working as before ("just get into the project, and we'll figure out the details and volumes later") is no longer viable—clients now appreciate the efficiency of every move. The ability to accurately assess volumes, timelines, and costs from the outset, followed by complete project realization without changing contract terms and subsequent adjustments, is the key skill for builders. Quality is a given—high-quality construction supervision should be not only an internal unit of the company but also one of the key services offered separately.

My main prediction is decentralization. Look at the quality of architecture and engineering solutions for new projects in Lviv, Dnipro, Kharkiv, and other regional centers—they are on par with projects in the capital. More and more companies will relocate their businesses to safer or less affected regions of Ukraine, and you must ensure the mobility of your project teams along with the client. Moreover, you need to be competitive not only in your region but in any other. Those who haven't worked on building a partner network in recent years will find it extremely challenging to adapt their business to different locations. We know what we are talking about, and we have several projects that we implemented in regions for the sole purpose of streamlining and testing all construction control processes in various parts of the country.

And finally, I want to end where we began: everything will be fine.

So, will the market quickly return to pre-war positions?

For a while, it will be challenging for most players. It will be challenging for clients too because a transparent general contractor is not a panacea—client personnel play an equally important role. State authorities will find it challenging to adapt to the actual transparency level of all processes to the standards of European countries. However, in 3-5 years, we will have a completely different market where all players are protected, working conditions are clear, and the quality of construction services meets the requirements of any standards.

And let's not forget about digitization. Create a digital infrastructure for your construction projects—this will save your life in the market.

Pliki cookie

Do prawidłowego działania używamy plików cookies. Kliknij „Akceptuj ciasteczka”, jeśli wyrażasz zgodę na korzystanie przez portal z tych plików.