July 16, 2007

Builders agree on plan to share higher costs

By Jessica Cheam

SIX months after Indonesia abruptly banned the export of land sand to Singapore, the construction industry appears to have come to grips with the disruption caused.

Prices for sand, which shot up initially, have stabilised, and an agreement has been reached by key industry players on how to share the cost increases.

The Construction Industry Joint Committee (CIJC) - which represents eight industry associations - has worked out a 75-25 per cent formula for private projects.

Under the agreement, developers will bear 75 per cent of the cost, with the other 25 per cent to be shared between contractors and concrete suppliers, according to a note sent out by the committee.

This is similar to the government's position of paying 75 per cent of the increase in construction costs of public sector projects affected by the ban.

CIJC chairman Chang Meng Teng said the formula is not a legal requirement but a recommended guideline that industry players should follow.

Most developers and contractors have already worked out arrangements on a case-by-case basis, said Mr Chia Hock Jin, executive director of the Real Estate Developers Association of Singapore.

In February, Indonesia's sand ban also caused a disruption in granite supply when its navy detained several Singapore-bound barges carrying granite on suspicion of sand smuggling.

The prices of sand and granite rocketed as a result of shortages in supply, pushing up concrete prices from $70 to $200 per cu m. Sand and granite is used to make concrete, which is used heavily for construction here.

Contractors - especially those with private contracts - faced losses of millions of dollars as they had to absorb the price increases to continue with their projects.

Since then, prices of sand, granite and concrete have dropped as suppliers diversify their sources to neighbouring countries such as Malaysia, Vietnam and Cambodia.

The recent note from the CIJC follows lengthy negotiations between the developers, contractors and suppliers, and comes after a period of uncertainty over who should bear the costs.

Mr Desmond Hill, president of the Singapore Contractors Association, said he was delighted with the agreement, noting that it 'sets some ground rules' for future negotiations.

Meanwhile, the surest sign the construction industry is back on its feet came last week when it recorded growth of 17.9 per cent in the second quarter - the fastest pace in 10 years - according to preliminary figures from the Ministry of Trade and Industry.

But industry players noted that the surge in demand for construction materials and equipment is pushing overall costs up.

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