Contractors may be resorting to high prices to avoid work
With the construction industry facing bulging order books from government and private developers, some contractors, notably building services contractors at least, are resorting to the time-honoured way of saying “I’m busy”.
Chinese newspaper Sing Tao Daily last month quoted Otto Poon Lok-to, president of the Hong Kong Federation of Electrical and Mechanical Contractors, as saying that with the industry facing a peak period for labour, many construction firms were changing strategies as regards workload.
In short, contractors were deliberately avoiding getting awarded a contract.
“As far as possible, they would bid high so as to not to easily win the tender because they are basically overwhelmed [with work]. They cannot not tender as the Housing Authority stipulates that only licensed companies can carry out works,” Poon was quoted as saying.
Latest figures from the Census and Statistics Department show that the total gross value of construction works performed by main contractors in the second quarter of 2013 rose 12.3 percent year-on-year in nominal terms to HK$42.2 billion.
According to cost consultant Langdon & Seah, in the second quarter of 2013, its tender price index for the second quarter of 2013 stood at 1713, up 10 percent year-on-year.
The Building Services Tender Price index compiled by the Architectural Services Department using 2007 as a base schedule stood at 230 in the second quarter of 2013, up 19.1 percent on the previous quarter.
For reasons unknown, that index stood at 281 in the third quarter of 2012.
So are contractors deliberately sabotaging their own tenders?
There are mixed opinions from people in the industry that Construction Post has talked to.
“We cannot say that main contractors are avoiding to win the tenders. They just don’t want to get the contracts at low price. This always happen when the market is lacking of labour and they foresee the cost will increase sharply,” a quantity surveyor at a listed contractor said.
A company boss at another listed contractor said they did experience having trouble getting subcontractor quotations.
“Obviously we are not able to comment on the price level but the subcontractors are very reluctant to give a price and we are struggling,” the boss said.
He said his company would not price high intentionally usually but would return the tender instead which it has done a lot recently.
“I believe most other major contractors are in the same position. Having said said that they are a numbr of smaller contractors who cannot tender for mega projects [but] are still very keen on getting new jobs,” the boss said.
Commenting on the practice of pricing high, one cost consultant said: “This is not surprising at all and is common practice for companies wishing to remain on a tender list but to win – for various reasons.”
“With MTR contracts well into the first and second fix stages of the programmes, most large E&M contractors will be very busy,” he said.
“We had heard of E&M tender prices being projected to rise quite fast this year…coming true it seems.”