Invasion of Spanish Builders Angers France Struggling to Compete

Photographer: Balint Porneczi/Bloomberg
While there are no statistics on the market share gained by non-French firms, local builders says there’s been a major increase in the past two years.

The earth movers digging out a sandy pit in the beach town of Biarritz could be any construction site in France. Except the builder of the 300 homes and its workers are Spanish.

In the neighboring town of Anglet, a Spanish company built the concert hall inaugurated this month. A kilometer up the road, in Bayonne, a Spanish company is building a 15-lodging apartment block.

And that’s just in a small corner of southwestern France.

The losing French bidders are crying foul, saying the Spanish pay lower wages and cut corners on regulations. The Spanish, fleeing a construction slump and an unemployment rate of 26 percent at home, say they’re just using European Union rules allowing free movement of businesses and workers. The French builders’ inability to stop their Spanish counterparts from wresting business away highlights President Francois Hollande’s uphill battle to make France more competitive.

“We thought for a long time we were in an industry that couldn’t be shifted offshore,” said Didier Ridoret, president of the French Constructors’ Federation, or FFB. “Instead, the reverse happened: the offshore came to us.”

With the best French bid in Anglet priced 40 percent higher than the winning offer, reversing the trend won’t be easy.

Foreign companies in France operate under the EU’s “posted worker” directive, which since 1996 has allowed workers from one EU country to be “detached” to another for up to two years and pay social charges at home, even if in theory they obey the labor laws of the host nation.

Nationalist Opposition

With 170,000 “detached’ workers in France in 2012 -- a 10-fold increase in a decade -- anti-European parties have made EU rules on free movement of labor a key target for their campaign in May’s European elections.

The anti-euro National Front’s Marine Le Pen, whose party polls show may be the largest vote-getter in May, wants to repeal the directive.

Even members of parliament from Hollande’s ruling Socialist Party have proposed laws to stiffen regulations on EU workers in France, saying that companies often use them to evade local labor laws.

For both the Anglet concert hall and the Biarritz apartments, French builders went to court to contest the contracts, so far without success.

While there are no statistics on the market share gained by non-French firms, local builders says there’s been a major increase in the past two years.

Spanish Invasion

A Barcelona company is building a highway bypass in the southern French town of Albi. Another Barcelona-based company, Urcotex, last June won a 2.5 million-euro ($3.4 million) contract to build firemen’s barracks in Perpignan. An Italian company, Pizzaroti SpA, is renovating a hospital in Marseille.

French builders say a majority of homes in border regions are now being built by Spaniards, Portuguese and Italians.

‘‘These contracts are often awarded solely on the basis of price,” said Patrick La Carrere, head of the builders’ federation in southwest France. “The Spanish have much lower charges so they can always undercut us.”

For companies hiring Spanish builders, the choice is clear. The 2 million-euro contract for the Anglet concert hall was awarded to Altuna y Uria SA, based in the Basque town of Azpeitia, after its bid was 800,000 euros less than the best French offer, said Jerome Poties, head of culture for the town.

“That’s not a neutral matter in these times,” he said. “It’s an established Basque company from just across the border that’s done similar projects in San Sebastian and Bilbao, and it fully met the criteria set by the architect.”

Hollande’s Pledge

According to accounting firm KPMG, Spanish companies pay 30 percent of a worker’s salary in social security contributions, and the employee pays 6.35 percent. In France, companies can pay as much as 45 percent and labor another 22 percent.

Taxes on the average worker were 49.4 percent of labor costs in France and 39.9 percent in Spain in 2012, says the Organization for Economic Cooperation and Development.

Hollande said in his New Year’s address Dec. 31 that he recognized the costs of doing business were too high in France. At a Jan. 14 press conference, he said he’d cut social charges by 30 billion euros by 2017.

It’s not just lower charges that help Spanish firms, said Maxime Alimi, an economist at Axa Investment Managers in Paris.

“There have been reforms in Spain that have made labor more flexible,” Alimi said. “In France, salaries are extremely rigid. It’s a tendency that’s not likely to change.”

Minimum Wage

With Spain accounting for almost a third of the euro region’s jobless, Prime Minister Mariano Rajoy has sought to make labor laws more flexible. That has made it easier to fire workers and reduce wages.

In 2012, Spanish employers’ average net yearly cost per worker fell for the first time since at least 2001, by 0.7 percent, according to the National Statistics Institute.

In contrast, the cost of labor in France in the third quarter of 2013 was up 2 percent from a year earlier, national statistics institute Insee said. France’s monthly minimum wage is 1,445 euros while Spain’s is 753 euros.

French, Spanish, and Italian construction companies operate all over the world, but until the financial crisis they largely stayed out of each other’s markets, partly because they had enough work at home and didn’t feel they could take on entrenched competition.

Attractive Market

After rising 0.3 percent in 2012, construction in France is estimated to have shrunk 2.8 percent in 2013, according to Euroconstruct, a regional industry group. In Spain, construction shrank 31.8 percent in 2012 and fell another 23 percent last year, the trade group said.

“France is in trouble, but by comparison it remains an attractive market for the Spanish,” Ridoret said. France lost 40,000 out of 1.2 million construction jobs last year, he said.

In Biarritz, the contract to build public housing was won by Goizuetako Estructuras of San Sebastian in July. Claude Lapix, head of a French construction company, said his bid finished fourth with the first three all from Spain.

He sued, saying the contract was delivered solely on price grounds, ignoring other criteria. A commercial court in Bordeaux in October refused to issue a summary judgment, allowing work to continue. A fuller ruling is expected this year.

Lapix says he was undercut by 15 percent, even though his bid was priced only to cover his expenses.

“My labor costs 28 euros an hour on average, but 60 percent of that are charges,” he said. “Spanish charges are about 33 percent. We can’t compete.”

Lowest Price

The same court refused to block the construction of Anglet’s concert hall.

Santiago Mendioroz, the commercial attache at the Spanish embassy in Paris, said he’s aware of French companies’ complaints, but said Spanish companies follow local laws. He said he’s never gotten complaints from French authorities.

The construction industry accounted for 42 percent of all workdays by posted workers in France in 2012, up from 35 percent the year before.

Under pressure from France and Germany, EU labor ministers Dec. 9 agreed on stricter limits on posted workers, allowing more intrusive controls by inspectors, and making construction companies responsible for their sub-contractors.

Gilles Savary, a Socialist member of parliament from Bordeaux, has proposed a bill that would transpose the EU agreement immediately, instead of waiting for 2016, and would allow companies to sue if the lower cost of labor was the only reason for losing a bid. The bill will be considered by a parliamentary committee Feb. 18.

“It’s totally normal that companies should be able to work across Europe,” Savary said. “But we can’t have an economy where everything is based on speculating on the lowest possible cost of labor.”

To contact the reporter on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Vidya Root at vroot@bloomberg.net

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