Construction industry in better shape now

THE Singapore Contractors Association refers to the article, ‘Construction firms face ‘collapse risk” (Nov 28).

The association does not agree with the interpretation of data provided by DP Information Group and the statement by DP managing director Chen Yew Nah. The banks enjoy a good working relationship with construction firms, and have supported construction firms with credit facilities for their projects.

The data provided by DP cannot independently conclude the financial health of construction firms or be used to summarily predict that these are warning signs.

Historically, the firms, especially smaller ones, are mostly self-financing and use short-term credit sparingly. Where required, banks usually provide credit facilities such as overdrafts, bonds, letters of credit and project financing to construction firms. Typically, project financing is at only 60 to 80 per cent, against contractor claims or certification, as developers are required to pay contractors on a maximum 56-day term. If the developer pays the contractor on a shorter payment term, there may not be any financing requirements.

In this global financial downturn, no one is spared. It is only the degree that varies. The construction industry has gone through many cycles and has come out stronger each time. Construction firms that survived the last downturn in the industry are in better shape moving forward.

The industry has improved and has put in place measures like the Security of Payment Act which helps stakeholders secure progressive payment for work done. Public-sector agencies use financial ratings to evaluate the financial health of the contractors participating in their projects.

The whole system is reinforced by the fact that developers are cautious in their award of projects to construction firms, and award criteria, besides tender price, include performance record in past completed projects, workplace safety and health and environmental record, manpower and financial records.

Simon Lee
Executive Director
Singapore Contractors Association

Source : Straits Times - 12 Dec 2008