Adjustment pains for construction sector

Singapore

AS manpower shortage and higher operating costs pound away, the construction sector is undergoing tough times.

The stress is evident in payment and project delays.

"Construction demand is expected to continue with many big projects such as the MRT line extensions, Changi Airport expansion, but a shortage of workers means projects may cost more and take longer to complete. Construction companies that I speak to say their biggest concern is manpower shortage with the tightening of foreign workforce measures," said Teo Han Jo, partner, building sector, at KPMG Singapore.

Payment delays in the construction industry rose 3.8 percentage points to 51.4 per cent in Q2. This means that only slightly more than two in five payment transactions within the sector were prompt, according to the Singapore Commercial Credit Bureau (SCCB), a body which tracks the credit history of local enterprises.

Prompt payment is defined as a situation in which at least 90 per cent of total bills are paid within the agreed payment terms; payments are considered slow when more than half of total bills are paid later than stated in the agreed credit terms.

High levies, particularly for basic skilled workers, remain a bugbear for the industry even as companies send their workers for training in an effort to upskill their workforce.

On the ground, this has translated into business disruptions. A local subcontractor involved in the Downtown Line 3's Upper Changi Station project is facing a potential shutdown, with its workers being taken over by its main contractor following lapses in paying foreign worker levies.

The subcontractor, who declined to be named, told BT it had lapsed in paying foreign worker levies on three instances due to a squeeze on cashflow. It had since arranged for payments to be made, and was now behind by one payment only. If the foreign worker levies continue to be unpaid, the work permits in question would be revoked, said a Ministry of Manpower (MOM) spokesman.

"Works on the DTL3 (Downtown Line 3) Upper Changi Station are progressing as normal. The sub-contractor . . . has foreign worker levy arrears and the main contractor, Samsung C&T Corporation, is in the process of taking over (its) workers. There is no impact to the schedule of the project," said a Land Transport Authority (LTA) spokesman.

But not all projects have been spared. The Ng Teng Fong General Hospital, which was originally due to open in December, for instance, is now slated to open in the middle of next year. Main contractor GS Engineering and Construction blamed the delay on a shortage of skilled construction manpower here.

Cost overruns are a major concern for the industry, said Singapore Construction Association Ltd (SCAL) president Ho Nyok Yong. It is for this reason that he urged members to be careful in tendering for new projects at the SCAL annual dinner in September.

"Stronger ones will stay put but I can see some smaller ones having financial difficulty," said Dr Ho. "There are some companies facing financial difficulty . . . eventually, they have to face the issue . . . some of (it) is because of cost overruns, and this is where being vigilant comes in."

It's not all bad news, though. The construction sector got a S$55 million boost via the Construction Productivity and Capability Fund earlier this month, bringing the total funding to S$335 million. And construction demand remains robust.

"We urge members to quickly get funded, upgrade equipment and overcome the shortage of workers. If you don't, you're against the tide anyway," said Dr Ho.

Noted KPMG's Ms Teo: "In my opinion, the outlook for the construction sector actually looks good, with abundant projects driven by government infrastructure projects in the long- term pipeline. Government agencies are also placing more emphasis on quality rather than just prices when awarding projects. The net effect of this for the construction industry is good over the longer term, as it raises overall quality and helps construction companies maintain healthy margins."

The construction sector has been a laggard in productivity improvement. Construction productivity has been declining since 2010. It was -2.7 per cent last year, -0.7 per cent and -2 per cent in Q1 and Q2 this year, respectively.

*Local players target regional construction wave