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Tuesday, July 6, 2010

Builders warn of costly delays

The government needs to be mindful that for private public partnership (PPP) projects to be successful, approvals must not be delayed.

Indecision and slow approvals, whether by federal or state governments, had many a time caused cost overruns in infrastructure jobs, says Master Builders Association of Malaysia.

"If the government is fully committed to implement infrastructure projects sucessfully under the 10th Malaysia Plan, there has to be an element of accountability in the event of delayed approvals," said MBAM president Datuk Ng Kee Leen.

"Whenever there is a delay in variation order approvals or land acquisition, the costs go up," he said.

"It is not just financing costs. It's also land acquisition costs, building material costs, labour and transportation costs and opportunity costs," he told Business Times in an interview in Petaling Jaya recently.
Government agencies, whether federal or state, need to execute their approvals within scheduled time limits.

"If they fail to do so, they'll need to compensate the bankers who, in turn, are accountable to their account holders and shareholders," he explained.

"This commitment from the government is necessary to boost investor confidence. If not, it will be very difficult for the private sector to pledge tens of billions of ringgit in loans or bond undertakings for infrastructure jobs under a PPP," he said.

Another factor that can help improve implementation of PPP projects is for the enactment of the Construction Industry Payment and Adjudication (CIPA) Bill.

Timely payment is vital for the survival and continuity of contractors and sub-contractors' businesses. Although payments should be made by government agencies or project owners within 30 to 60 days, which is the industry practice, it is often not the case.

Currently, there is no law to mandate security of payment and quick justice via adjudication. Unpaid sub-contractors either suffer in silence or are put out of business, well before they have a chance to seek arbitration or go to court.

"When there is late payment, projects are delayed, squeezing profits along the way. Chronic problems of late and non-payments affect the entire delivery chain of consultants, contractors, building material suppliers, freight forwarders and bankers. A rough calculation will show claims running up to billions of ringgit," he said.

On average, construction jobs run into the millions and span over three years. With each progress payment involving big sums, Ng said the enactment of the CIPA Bill is vital to protect the interests of contractors and sub-contractors.

"This law will help to minimise payment defaults via timely and cost-efficient recourse to adjudication," he said.

"We have been waiting far too long for the CIPA Bill to be made law. We initiated this Bill as early as June 2003. A year later, during a construction industry roundtable chaired by the then Minister of Works Datuk Seri S. Samy Vellu, he lent support to this proposal for Cabinet deliberation," said Ng.

"We, therefore, appeal to the Government to expedite the enactment of CIPA Bill," Ng said.

Similar laws are already in practice in the region. Among them are Australia's Building and Construction Industry Security of Payment Act 2002, New Zealand's Construction Contracts Act 2002 and and Singapore's Building and Construction Industry Security of Payment Act 2004.

By Business Times

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