Answers arrive to salvage construction

September 23, 2021 | 15:58
Suspension of many construction site activities disrupted by supply chain woes, skyrocketing material prices, and serious shortage of labour is posing great challenges for contractors.
Answers arrive to salvage construction
Answers arrive to salvage construction, illustration photo/ freepik.com

Earlier this month, a handful of domestic construction contractors including Delta Group, Vinaconex Corporation, CIENCO4, Eurowindow, and Phuc Hung Holdings proposed to the Vietnam Association of Construction Contractors (VACC) and the government to urge for a swift response from local authorities to address their problems.

The VACC, likewise, also expressed its concerns over the skyrocketing prices of construction materials. “These difficulties are paralysing the construction sector, particularly in the south of Vietnam, where most localities are severely affected by the pandemic,” the association noted.

According to Delta Group, the number of workers involved in projects is insufficient, affecting construction output and the progress of projects. In addition, the price increase and scarcity of input materials, such as the price of construction materials, increased by 25 per cent compared to the beginning of the year. Among those, the highest increase was construction steel and cement.

Meanwhile, the majority of current contracts are applying fixed unit prices and not adjusting from the time of signing.

A document from CIENCO 4 said that social distancing measures, restricting travelling and transporting goods to and from localities, are not consistent. Vinaconex Corporation meanwhile reflected that long-lasting social distancing affects bidding and project implementation.

The same difficulties have been raised by many other construction contractors such as Thanh An Corporation, Phuc Hung Holdings, No.319 Corporation, and others.

Le Viet Hai, chairman and CEO of Hoa Binh Construction Group said, “The construction sector has also experienced a bumpy road over the past three years due to the rising price of building materials and the modest number of newly-licensed investment projects.”

Nguyen Quang Cung, chairman of the Vietnam Cement Association added, “Since the end of April, the pandemic has affected a series of construction projects in Hanoi, Ho Chi Minh City, and 19 localities in the south.”

Last week, Hanoi Department of Construction issued a document on updated implementation of pandemic prevention and control measures at construction sites in the city. The department has requested people’s committees of districts in Hanoi to urgently send reports of ongoing construction projects on a daily basis in a bid to control the pandemic.

Besides this, VACC chairman Nguyen Quoc Hiep suggested the prime minister assign the Ministry of Construction (MoC) to guide construction groups in application of force majeure conditions for delivery and receipt contracts implemented during the social distancing measures.

The VACC also suggests the MoC add on the costs of compulsory pandemic prevention to construction investment costs, and provide specific guidance on conditions for projects which are able to continue construction during the restrictions.

The association requested the government to temporarily delay social insurance payments in the second half of this year for all temporary workers. In addition, the VACC proposed to extend the time for paying VAT from the second quarter of 2021 to the beginning of 2022, as well as a 50 per cent reduction of corporate income tax from April to the end of this year for all construction businesses.

Bank loans for construction sites and projects which are stopping construction are proposed to be charged at zero interest and the payment of land use fees for businesses postponed until the end of 2021. At the same time, a reduced land rent needs to be considered.

Tran Nhat Quang, director of Research and Development at CT Group said, “Apart from other measures mentioned by specialists, I recommend some more actions such as applying high-technology and AI to their operations. Furthermore, constructors must enhance digital transformation, ensuring the quality of work-from-home which will become ordinary in the future.”

Do Lan Huong - Associate director, Deal Advisory and M&A KPMG Vietnam

Answers arrive to salvage construction

Many contractors, especially those with high financial leverage, struggle to have sufficient cash to cover increasing operational costs and pay loans, but maintaining liquidity is crucial.

Specific solutions and support include an extension for debt scheduling and restructuring of overdue debts and exemption/reduction of fees and interest rates from banks to businesses hit by the pandemic and reduction in corporate income tax rates and social insurance contribution for labourers.

A framework for cost and time adjustments should be established in a collaborative spirit between project owners and contractors.

Ben Gray - General manager, Cushman and Wakefield Vietnam

Answers arrive to salvage construction

The concern I hear from investors, developers, and contractors is how long it will take to reboot supply chains on a national level. Raw materials being imported, processed, or refined are facing supply shortages, bought about by inability to move goods and materials around the country.

Authorities should prioritise ensuring that supply chain issues are resolved to remove or mitigate additional price increases. To support developers, banks can reduce capital costs raised to build projects. Meanwhile, good corporate discipline ensures that contractors include a price escalation clause that could help them cope.

By Ngoc Huong

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