Most recently, the Vietnam Association of Construction Contractors (VACC) continued to make a written request to the Government Office to direct relevant ministries and sectors to thoroughly examine the cause of the sudden increase in steel prices, otherwise Contractor will fall into bankruptcy. Talking to VnEconomy, Mr. Nguyen Quoc Hiep, President of VACC said the difficulties that construction industry enterprises will face when the price of raw materials fluctuates wildly like today. First of all, let’s talk about the steel value structure in a construction project. Normally, the price of steel in construction works is about 20% of the value, so if the price of steel increases to 40-45%, the construction cost will increase. Not to mention not only steel but also the price of other materials such as cement, bricks, tiles… also increased but not as fast as steel.
Steel is the raw material that accounts for the highest proportion of the cost of construction, leading to the entire construction industry suffering. Construction contractors are extremely difficult, with the rate of steel prices increasing like this, all the bankrupt contractors close down. There are two main problems with construction industry enterprises. Firstly, with the project using the budget investment capital, when the contractors have not yet decided to balance the price, adjust the total investment, they will not dare to do it. Having to buy steel at the price of 18,000 – 19,000 VND/kg but only being paid the unit price of 13,000 VND/kg, who will compensate for the remaining 5,000 VND? Where do you get it to make up for it? Not doing it is difficult, but doing it is bankrupt, so contractors are forced to stop. The budget investment projects will be delayed or broken if there is no decision to compensate. Secondly, it is an investment project with private capital and social resources. This contract is signed in the form of a package contract or a fixed unit price contract with payment based on the actual volume when checking the unit price of steel, cement…
Usually the contractors will negotiate the price and buy in advance from the steel supplier. But not everyone has the money upfront to buy. If there is a work to pay for it, the contractor who buys it on a regular basis, signs the contract must accept floating, the actual unit price compared to the contract is 3-5%, but it is acceptable but up 40% – 45 % goes bankrupt. But if the interest rate on a project from start to finish is high, the contractor can get 5% and not only 3%, provided that the investor pays on time and has no outstanding debts.
There is an opinion that steel prices increase due to increased import prices of ingots, the relationship between suppliers including China and Australia has problems leading to changes in the amount of billet sold to Vietnam. But the amount of steel on the market is not lacking, not because the price increases due to a shortage of supply. In fact, buying as much steel is enough, but the price increases. The Vietnam Association of Construction Contractors has proposed to the Government to check and clarify the reason why steel prices have increased so suddenly while electricity prices have not increased and input production costs have not increased. Steel back up? If the cause is subjective, limit it, objective causes find ways to remove it to reduce damage to the construction business. According to Mr. Hiep, it is necessary to have measures to recommend and call on investors to consider and share with contractors. From a legal perspective, they are not wrong, cannot be forced, but because of their common social responsibility and community responsibility, investors can share to support contractors in this time. If not, the construction company is forced to stop construction because it makes more losses, the project stalls, and the dispute drags each other to court. Currently, construction contractors do not know what to do, they also go bankrupt, if they don’t do it, they can’t finish it, if they quit the work, they will be fined in court. All the bidding dumps. Contractors are extremely difficult. Construction enterprises all use the word urgent to call for help from state agencies to consider and settle for reasonable reasons.
According to Mr. Nguyen Quoc Hiep, in the past 10 years, the domestic construction industry has strived and made great progress. Before, compared to Korean, Singaporean, Japanese contractors, I only worked as a labor subcontractor, but now my level is equal to Korea, Singapore, let alone Malaysia or Myanmar. But if there is no suitable mechanism, in the future, there will be no Vietnamese construction companies in the next 5 years. Because with this mechanism, construction only has losses, bankruptcy. Bidding prices are fiercely competitive, businesses do not have room for development. The country returns to the time when there are no more Vietnamese construction companies but they have to hire Japan and Korea, what will the cost be?
From the general perspective of the economy, I am concerned because the price increase of construction materials is dangerous, affecting the whole economy. The increase in the price of construction materials led to a series of price increases such as an increase in the cost of real estate products, and the CPI was not in the safe range. High inflation rates push many other risks. In addition to the inflation index, which also affects GDP growth, we are striving for GDP growth of 7%, of which the construction industry alone has contributed 8-10% to the growth. There is no place where there are no hands to build, only with construction will economic growth. Economists and economic experts should also identify this as a national problem, not just the construction industry. More attention should be paid to this level. It is necessary to look at the bigger picture, further, if the economy wants to develop, the construction industry must be a strong enough force, the state’s measures to support the construction industry are for the whole future, for the whole economy. Not just for the construction industry. The State needs to take measures to protect construction contractors.
(Reference source: VnEconomy)
