More Construction firms taking on projects below cost
February 3, 2017.
More construction companies in Singapore are taking on projects at thinning margins, often below cost, just to keep their businesses running and to justify their sunk costs.
Mr Loh said ‘they also do this because they need cash to flow through and finance their other current projects, I wouldn’t be surprised to see construction firms winding up this year.’
He said that different contractors respond to the market downturn differently;
‘On one end, there are those who shrink their workforce whether by retrenchment or attrition so as to stay afloat until the market turns around. On the other end are those who will price the tenders down, even below cost just to win the tender so as to maintain their overheads.’
He added, ‘According to our analysis, tender prices have fallen 4.1% in 2016, and are likely to fall by a further 1-2% in 2017.’
While the government is bolstering construction demand by introducing more civil engineering and infrastructure projects, these don’t suit all contractors.
Also, the sheer size of some of these projects – hospitals, airports – means that while the project volume has been maintained, the number of projects may have decreased.
‘It may be a bigger pie, but not many people have a share in it’ said Mr Loh.
He urged firms to adopt a “paradigm shift” to pursue expertise in new technology.
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