How much does the square meter of recovery cost?

In January 2024, over 27,000 apartment buildings in Ukraine were damaged or destroyed due to Russian aggression. Currently, there are various tools for the recovery and compensation of those affected. There are state programs established by the Law . These tools include compensation for damaged housing and, for completely destroyed properties, either a housing certificate, which can be used to purchase a new apartment, or funds for construction, specifically applicable to private houses. In addition, there are local compensation programs, and local authorities have the discretion to decide on the restoration of destroyed buildings. We decided to investigate these reconstruction projects funded by the state budget from the ground up.

In 2023, Prozorro announced two procurements of such works in the Kyiv region – in Buzova and Vasylkiv. Those facilities were destroyed by Russia in 2022. Local self-government bodies decided to rebuild them. For comparison, we analyzed two additional construction projects unrelated to the restoration of destroyed high-rise buildings. A new house is planned to be built in the village of Mezhova in the Dnipropetrovsk region for internally displaced persons, while another high-rise building is under construction in Strumivka, Volyn region. This project is completely unrelated to reconstruction.

We calculated the cost per square meter in these houses to determine which option is more cost-effective for the state: rebuilding through our own efforts or providing cash certificates to the victims within the framework of the eRecovery Program. To do this, we compared our findings with prices on the commercial market and the recommended prices from the Ministry of Recovery.

The cost per square meter in new commercial buildings

According to dom.ria, the average price for 1 sq. m in new buildings in March 2024 was:

•       UAH 31.4 thousand in the Kyiv region (excluding Kyiv);
•       UAH 31.4 thousand in Volyn region;
•       UAH 40.9 thousand in Dnipropetrovsk region.

The new buildings, whose prices are presented above, typically do not include specially equipped shelters. This is because they commenced construction prior to the onset of large-scale war when building regulations did not mandate such a requirement. However, they may have parking lots or basements that can serve as the simplest shelter.

For reference. New construction standards entered into force in November 2023. According to these standards, residential and public buildings, including schools, kindergartens, and hospitals, must be equipped with protective structures for civil defense and dual-purpose structures. These are intended to safeguard the population from dangers arising from emergency situations, military actions, or terrorist acts.

Prices from the Ministry of Recovery

The Ministry of Recovery also provides its own recommendations on the appropriate construction costs funded by the state or local budget. Every quarter, the Ministry calculates the indirect cost of housing construction per region in Ukraine. That indicator takes into account all costs associated with construction, including design, administrative expenses, and the profit of contracting organizations. According to the resolution, this indicator should be used, among other instances, in determining financing from the state or local budget for housing construction. As of April 1, 2024, the indirect cost of 1 sq. m of the total area of the apartments in the building (including VAT) was:

•   in Ukraine — UAH 21.5 thousand;
•   in the Kyiv region — UAH 21.5 thousand;
•   in Dnipropetrovsk region — UAH 20.9 thousand;
•   in Volyn region — UAH 20.7 thousand.

The State Audit Service advises procuring entities to use these prices as guidance when determining the expected cost of building new housing. However, in Mezhova, Dnipropetrovsk region, a procuring entity contested the monitoring conclusion, and the court ruled in its favor. The court concluded that the procuring entity accurately determined the expected cost of the procurement based on the project and estimate documentation.

Prices in Prozorro

Very roughly

If we divide the amount of the contract by the total area of the apartments in the building, the lowest price for 1 sq.m. in Strumivka is UAH 26.3 thousand. We remind you that, as mentioned earlier, according to dom.ria, the average cost of 1 sq.m. in that region in March 2024 was UAH 31.4 thousand.

Mezhova, in the Dnipropetrovsk region, is second with a price of UAH 39 thousand per square meter. Neither of these buildings’ projects include special shelters (anti-radiation shelters), but they do have basements. According to dom.ria, the average cost of 1 sq.m. in new buildings in the Dnipropetrovsk region in March was UAH 40.9 thousand.

The price for 1 sq.m. in houses in the Kyiv region is almost twice as high as the cost in other regions: UAH 61.6 thousand in Vasylkiv and UAH 59 thousand in Buzova. According to dom.ria, the average cost of 1 sq.m. in that region in March 2024 was UAH 31.4 thousand. However, the projects for both of these buildings include the installation of full-fledged anti-radiation shelters in the basements, plumbing in the bathrooms of all apartments, and in Vasylkiv – gas stoves in each apartment.

The comparative characteristics of four buildings according to key parameters are presented in the table:

The construction documentation did not include separate estimates for the construction and arrangement of anti-radiation shelters. However, it is impossible to accurately calculate the cost per square meter without accounting for the expenses related to such shelters. We sent requests to procuring entities and procurement initiators, asking them to provide detailed information on this matter.

Minus anti-radiation shelter

The KRMA’s Regional Development Department responded that the estimated cost of building a shelter in Buzova is UAH 19.1 million. So, the price of 1 sq. m without taking into account the costs of the shelter will be UAH 52.7 thousand.

The Vasylkiv City Council replied that the estimates do not include separate calculations of costs for the shelter. Instead, the Infrastructure Restoration and Development Service in Kyiv Oblast stated that the estimated cost of the shelter is UAH 10.2 million. Therefore, the approximate price of 1 sq. m in a house in Vasylkiv, without taking into account the costs of building a shelter, will amount to UAH 59.7 thousand.

We understand that such calculations are quite approximate, but even with possible errors, we see that the cost of 1 sq. m in projects in the Kyiv region significantly exceeds the price on the commercial market (UAH 31.4 thousand/sq.m). We tried to investigate why this happened.

What’s in the estimates?

In Buzova, Mezhova and Strumenivka, the contract price is dynamic, that is, it immediately assumes that it will be adjusted, depending on market prices. At the same time, the price in Vasylkiv is fixed for the duration of the contract, making it much more difficult to change.

We reviewed the estimates of all four constructions and found that the prices for similar building materials differ significantly. The most expensive ones are in estimates in Buzova.

Many construction materials in Vasylkiv, as indicated in the estimate documentation, cannot be clearly identified by their names. The construction project was ordered by the city council itself. It does not contain detailed specifications for certain types of work, such as facade arrangements or reinforcement of reinforced concrete structures. As a result, there is no detailed information on these items in the contractor’s estimates.

According to our calculations, over 50% of the total cost of construction materials comprised items where groups of construction materials were used instead of individual material names. These groups generalize materials with similar production technology but differing characteristics and prices. For example: “Basin”. The price range for ceramic washbasins varies by 2300%, ranging from UAH 299 to 7015. For all manufacturers, the price depends on the size. “Reinforcement frames” make up 40% of the cost of all materials. This position also cannot be clearly identified, and the value of its components cannot be determined. Under such conditions, any analysis of the market price cannot give a reliable result.

We were alarmed by the extremely high prices in the estimate for Buzova, so we sent a request to the procuring entity asking for certificates of the services rendered. The prices on those certificates were significantly lower than the prices in the initial estimate. And not only selling prices, but also costs for delivery and storage of materials. In the contract estimates, the contractor justified the price by stating that the distance of delivery of building materials would be 80 km, while in the documents, it is indicated as 28-40 km. For some items, the price in the certificates of the services rendered was 1.5 times lower than the price in the estimate. For example, the current price for 16-18 mm Class A-III reinforcing steel was UAH 50.7 thousand per ton in the estimate, whereas it was UAH 27.9 thousand per ton in the certificate.

Given that the prices of materials in the certificates are significantly lower, the question arises: where will the difference go? It would be logical to adjust the total value of contracts through an additional agreement. But this is an uncommon occurrence in construction; the cost of projects typically only increases. We will continue to monitor the prices in the certificates for this project.

Based on the results of this analysis, we conclude that, for now, it is more advantageous for the state to compensate the victims for their destroyed real estate with certificates. After all, housing on the commercial market is currently cheaper than constructing new buildings funded by the budget.

Is this a final conclusion? No. These initial projects highlight the need for closer control at all stages if the state plans to rebuild with its own funds.

At the same time, constructions funded by the budget should be more transparent to allow both the public and relevant authorities to monitor them. The names of construction products in project and estimate documentation, offers, and especially in contracts, should be as specific as possible. This is the only way to objectively assess whether they contain potential overpayments.

Additionally, it may be considered to publish certificates of services rendered because only through them can we see the actual costs of various materials, wages, and other expenses. This is quite a difficult task because the appropriate platform should be selected. Since these documents are not directly related to procurement, it may not be entirely appropriate to publish them on Prozorro. Spending does not have the corresponding functionality, and DREAM is not yet fully operational.

Perhaps it is worth considering the development of standardized typical drafts for such reconstructions, which could serve as a basis and be partially adapted. This would reduce project documentation costs and constrain the creativity and flexibility of procuring entities regarding design and architectural solutions for budget-funded projects.

Until all of this is regulated, the data suggests that the compensation tool is more cost-effective, transparent, and efficient in terms of budget expenditure.

The material was prepared within the framework of the USAID/UK aid TAPAS Project/Transparency and Accountability in Public Administration and Services.