CONTRACTORS are unable to keep up with the soaring prices of raw building materials with many opting to stop bidding on new projects because they will lose money.

Business owners who spoke to The Malaysian Insight said that the cost of raw materials has risen by as much as 100% this year due to the Russia-Ukraine war, as well as the fluctuation of the ringgit.

The most dramatic rises include cement, aluminium, wood and steel.

Leong Kin Keong, president of the United Malaysia Contractors Association (UMCA), said contractors were now afraid to bid on new projects.

“Every time we do so, it will take three to four months to start construction at the earliest,” Leong said.

“Yet, at the rate prices are going, we cannot keep up. Even suppliers are only giving us estimates because we don’t have a variation of price (VOP) clause for building materials.

“There is no way for us to ask for a difference in costs if building materials go up in price, without the clause.”

A VOP clause is a precaution that allows renegotiation of the final price, subject to variations in the price of key elements of the contract over time, such as the cost of raw materials.

Leong said the dilemma for private contractors now was on starting work on projects that have already been given the green light to proceed.

“We face the risk of breach of contract but some contractors would rather do this after assessing how much they stand to lose if they start construction.”

This will ultimately have a negative impact in the construction sector, Leong said.

Need government intervention

Chua Han Long, the chairman of the Selangor and Federal Territories Kin Cho Hong association, said the high cost of raw materials have been a persistent problem but the government has not taken any measures to deal with it.

“The price of materials has skyrocketed but the developers don’t want to increase their prices,” Chua said.

“At the same time, suppliers are unsure of how much materials will cost, so we are stuck.

“The main problem is that the price fluctuation is huge, 50% to 100%. It doesn’t help that the ringgit continues to depreciate, further pushing up the cost of imported materials.”

Leong said contractors would prefer to default on a project, rather than face huge losses.

“The situation is different for government construction projects. They are VOP controlled, so the price is fixed.

“The private sector does not have VOP unless developers decide to give back certain subsidies, but not all are willing to do so,” he said.

UMCA secretary-general Sinn Fuh Ming said the association has joined with two of its contemporaries to approach the government with no success.

“We asked for the government to allow private contractors to apply for VOP. The cost of material is getting out of hand,” Sinn said.

“Either allow us to apply for VOP or give us subsidies. We want the government to treat us fairly and help us through this predicament.”

Under the current circumstances, Sinn said it was only a matter of time before private contractors go bankrupt.

“How can any nation progress without the construction sector? It is the backbone of the country, housing is very important.”

If the problem is not resolved, the cost will be passed to the homeowner, and this would mean more people will not have access to housing.

Loeng added that contractors also have to bear increased costs for migrant workers.

Daily wages for migrant workers used to be RM70 to RM80, now it is RM120, and yet, it is hard to find workers, Chua added. – May 28, 2022.