April 6, 2007, 10.49 pm (Singapore time)

Building contractors protecting their bottomline

BUILDING contractors, hard hit by recent hikes in prices of sand, granite and concrete, are taking steps to protect their bottomline.

Many say they will start looking to put a clause in future contracts to take into account fluctuations in raw material prices. If not, they will tender for future jobs at a higher price to prepare for contingencies.

The Singapore Contractors Association is also doing its own survey to gauge the real impact of the current situation on its members.

Millions of dollars are at stake. Prices of concrete - made with sand, aggregate and cement - are now about three times what they used to be, at around $200 per cubic metre.

Many contractors who signed fixed-price deals with developers or even government agencies before Indonesia's ban on sand exports were imposed in February, are now paying the higher costs upfront to avoid any delays in work.

But they are also worried about not being compensated for the increases.

The association's president, Mr Desmond Hill, told The Straits Times on Thursday that contractors were still bearing the full cost of the increases.

The Government, on its part, has committed to paying up to 75 per cent of the extra costs involved for public sector projects, and will make its first payments from this month.

Government agencies such as the Singapore Prison Service and the Singapore Sports Council, have already started processing the claims submitted by their contractors, while the Housing Board, Land Transport Authority, JTC Corp, the Ministry of Health, the National Parks Board, and the Defence Science and Technology Agency are expecting their contractors to submit claims for the additional costs by early this month.

The Government has strongly urged developers to work out cost-sharing arrangements with their contractors, but at the same time acknowledged that it cannot force a solution when it comes to private sector deals.

The Straits Times checked with 10 developers on the impact of rising material costs and if they planned to help out their contractors. Four of them either did not respond or said their spokesmen were busy or out of town. The rest mostly said that they will work with their contractors on a case-by-case basis.

According to the Building and Construction Authority, the combined effect of the increase in sand and granite cost will raise construction prices by 7 per cent on average, and development costs by 2 per cent.

The general manager of Straits Construction, Mr Kenneth Loo, estimates a residential project is likely to cost 8 to 10 per cent more to build now. This means it could cost up to $5 million more to build a $50 million condominium.

Another major contractor, who sought anonymity, said his firm could lose about $20 million from three ongoing private residential projects worth more than $160 million if he bore the full brunt of the increases.

Meanwhile, small-scale builder Yaw Eng Construction expects to at best break even from the four property maintenance contracts that it has on hand right now.

One of its directors, Mr Tommy Chua, said: 'If we are going to tender for projects anymore, we will base it on current prices, or add in a few more percentage points just in case.'