Construction contractors hit hard by surging costs

By Dat Nguyen, Nguyen Hang   June 24, 2022 | 05:00 am PT
Construction contractors hit hard by surging costs
A worker is seen at a road construction in Quang Ninh Province in April 2022. Photo by VnExpress/Minh Cuong
Contractor Hoa in the southern province of Dong Nai is in distress as the cost of one of his road projects has risen by 70 percent in five months.

The owner of a construction company said: "The rising costs have caused severe impacts on my company. We have put two projects on hold and are waiting for prices to go down."

Huynh’s company in the neighboring province of Binh Duong is likely to report losses on the construction of a road project it began earlier this year.

It cannot back away from the project as the work is 75 percent completed.

"We use a lot of diesel each day, and so the rising fuel costs have eaten away all of our profits," Huynh said.

The rising costs of raw materials amid surging global inflation is posing problems for construction companies who struggle to renegotiate their contracts as losses loom.

Cement prices in Vietnam have gone up three times this year by around 28 percent to VND1.2 million ($51.62) a ton.

In the latest increase, 15 major cement producers all hiked prices by up to VND80,000 per ton.

Steel prices have been falling due to declining demand in China, but others such as sand, bricks and stones have all seen prices go up.

Diesel prices rose by nearly 60 percent in the first half of the year.

The price rise is due to a supply shortage caused by the Russia–Ukraine crisis.

Construction companies are between a rock and a hard place: continue their ongoing work and make losses or stop and possibly lose customers.

"Usually I sign a contract with the expectation of a 3-5 percent price rise, but this time the rise has exceeded everyone’s expectations," Hung, CEO of south-based construction company Nam Thanh Hung, said.

A road that used to cost VND1 billion to build now costs a minimum of VND1.7 billion, or an increase of 70 percent, he said.

Most construction contracts do not have provisions for price increases built in, and so during periods of strong inflation, contractors have to negotiate a price change, which is not an easy task.

There is "chaos" in the market since suppliers are jacking up prices as much as they want due to lack of regulation, Hung said.

"This has reduced my profit by 13-15 percentage points."

Major national infrastructure works are also affected by the price surge.

Project management departments under the Ministry of Transport have reported that sections of the North-South Expressway have seen prices of soil rising by 30-40 percent since the end of 2020 when the contracts were signed.

Prices of cement are up 25-30 percent and steel 30-40 percent, they added.

Deputy Minister of Transport Nguyen Ngoc Dong said part of the reason is the delay by localities in publishing new construction material price lists on which contractors base their prices.

"Contractors have therefore been slowing down work to wait for prices to drop, which will in turn affect the progress of the projects and speed of public spending."

While there is no guarantee that prices will go down, Hung does not have much choice but to continue with the work though there is not much profit left.

"Prices change weekly or even daily. It is really tiring."

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