MAY 2022 PRESIDENT MESSAGE
GOVERNMENT INTERVENTION NEEDED ON HIGH BUILDING MATERIAL PRICES
The rising material prices sent skyward by the pandemic and rise of material and energy costs are negatively impacting contractors handling both Government and private projects. Contractors handling Government projects are being forced out of business as price index from the Department of Statistics Malaysia (DOSM) meant to protect contractors handling Government projects from volatile markets is unable to capture the full and true prices of raw materials skyrocketing costs. Rising prices are threatening the viability of construction projects from infrastructure to residential projects. The problem is even more acute in private sector projects, many of which do not include provisions to account for hiked prices of raw materials in terms of a Variation of Price (VOP) term. One of the key difficulties for the DOSM building materials index is keeping pace with rapidly shifting global prices, which is linked to the availability of key commodities. However, public projects contractors rely on the price indexes to protect them from the changing cost of inputs throughout the lifetime of a project. Without changes to contracts, or a way to correct for the lag in the price index, major public projects could struggle to find bidders or face challenges in being completed.
Many contractors are at risk of going out of business due to the pressures of the price crunch. Some are also considering halting bidding for projects by local authorities because the way in which contracts are often structured shifts too much risk onto contractors already stretched by the lag in the price tendered and actual current prices. This disparity between actual prices tendered and actual current prices need to be corrected. They are inaccurate and do not reliably reflect market volatility. For example, price of steel bar in February 2021 was around RM2,680/MT but in April 2022 the price is now about RM3,500/MT an increase of 30.6%. Bulk cement was RM210/bulk in February 2021 but in April 2022 it is at RM350/bulk an increase of 40%. Diesel was RM1.90 per litre in February 2021 but in April 2022 it is roughly RM4.34 an increase of a whopping 128.4%.
MBAM would like to propose the following solutions to the Government: –
- Proposed to lock in price for existing current projects
- Review of the VOP rate in Government contracts projects
- Stagger price increases
- To seek Government assistance in the form of subsidy /grants
- Proposed pegging of prices vs international market price
- Levy Exemption For 12 Months to Support Contractors and Defer Human Resources
Compounding the problem, delays due to shortages of materials and manpower are stretching out the time it takes to complete a project, exposing builders to more risk and for a longer period. We urgently seek the Government’s immediate intervention to help the Malaysian construction industry through the present price increase. The much-needed assistance by the Government will help contractors’ complete projects in a timely manner and avoid termination or abandoned projects.
Foreign Workers Employment
There are still unresolved issues between Malaysia, Indonesian and Bangladesh. Despite the MOU signed on 1st April 2022 with the Indonesian Government, to-date employers are still not able to sign Job Order with Kedutaan Besar Rakyat Indonesia (KBRI). Without the Job Order, agents in Indonesia cannot start the process of medical examination and passport application.
Quota application procedure under Ministry of Human Resources for construction companies are still not very clear as compared to the procedure while under KDN previously. While those companies applying for more than 100 workers can submit directly through FWCMS, those applying for lesser numbers will not be accepted by FWCMS system. These companies under grade G4, G5, G6 and G7 applying for less than 100 workers will not have a solution to their workers shortage problem. Hiring foreign workers has been a challenge for a long time but the pandemic exacerbated it to the extreme. We are all competing for an already small labour pool. The construction sector are in need of urgent workers too and we hope the Goverment can create a “Green Lane” to fast track entry of foreign workers to our industry.
Builders are feeling the pressure of long hours and it will be good if foreign workers can come in to boost productivity. If contractors are not able to deliver the projects in time due to shortage of workers, then they will have to deal with penalties as per their contracts. Due to the fact that the hiring of foreign labour had been frozen for some time, it is taking more time for structures to be completed and builders are thinking hard whether to tender for new projects if labour is still going to be a big problem moving forward.
Most of these foreign workers have very high resilience and are able to work under extreme pressure and willing to work for paid overtime. Furthermore, most of them would already have the experience on some construction projects, offering experience and skills. As locals are most unwilling to take up construction jobs, employers are forced to hire foreign workers especially from Indonesia and Bangladesh to fill the space of labour requirement. We definiately need the workers as soon as possible and we hope the Goverment can urgently open up the process of recruitment without adding additional cost to recruit.
It’s no secret that the construction industry has been dealing with a severe labour shortage. While the industry itself is preparing to recover and the need for new buildings such as residential homes, public housing, commercial real estate, and projects for public works and institutional buildings is projected to increase over time, the skilled workforce needed to complete these important projects has decreased significantly. It is a problem that can’t be fixed by a magic bullet. However, it is timely for immediate and necessary Government intervention to alleviate this shortage of foreign labour.
Before I end this message, let me wish those celebrating a Salam Aidilfitri, Maaf Zahir Batin. Do travel safely to and from your destination.
Allah bless!
Tan Sri Sufri Haji Mhd Zin
President, MBAM