Kuala Lumpur, 4 May 2021-The Construction Industry Development Board (CIDB) Malaysia urges for a variation of price (VOP) clause to be allocated to government projects at least for the implementation period of the movement control order (MCO). The provision of this VOP is expected to reduce the financial pressure and burden on contractors affected by the increase in building material prices and ensure that ongoing projects can be completed on schedule.
“CIDB is aware of the increase in the price of building materials in the market, which is a result of the COVID-19 pandemic. There is no doubt that the increase in the price of building materials can affect the financial flow of industry players along the supply chain of the construction sector and this increase is expected to be passed on to end users. This issue will certainly trigger various side effects to all industry players in a challenging pandemic situation, “said CIDB Malaysia CEO, Datuk Ir Ahmad ‘Asri Abdul Hamid.
CIDB found that the increase in the price of building materials had a different effect on small and large grade contractors. Each manufacturer will provide a different discount rate to buyers, subject to the quantity, payment terms and previous purchase and payment records. For example, high price increases may be felt in small quantity purchases, while prices for bulk purchases do not show significant changes. Other factors that were seen to influence the increase in prices were the increase in the cost of raw materials, limited stocks of building materials, as well as business ancillary costs.
Following an article published by Utusan Malaysia on 23 April 2021 entitled, “Prices of goods continue to rise, supply contractors are going bankrupt”, CIDB has reviewed the prices at hardware stores around Perlis. The average price of building materials in the northern region in March 2021 compared to August 2020 showed an average price increase of around 40 per cent.
The increase in the price of the main building materials involved the price of:
- Iron by 43 per cent from RM2,304,00/ton to RM3,302.00/ton;
- Cement by 4 per cent from RM16.00/bag to RM16.70/bag;
- Aggregate stone by 4 per cent from RM35.00/ton to RM36.00/ton;
- Bricks by 18 per cent from SM0.36/unit to RM0.46/unit;
- Ready -mixed concrete by 27 per cent from RM195.00/m3 to RM61.00/ton
CIDB building material price data is the average price obtained monthly from contractors, hardware stores and manufacturers. This price is posted for general reference on the official cost information portal, the Nasional Construction Cost Center at www.n3c.cidb.gov.my.
Simulations based on this price increase show a 7 per cent increase in construction costs. This increase in construction costs is seen to reduce the profit margins of contractors, especially small contractors, which is estimated at around 15 to 25 per cent. This simulation is based on the weightage of the cost of using building materials to the total cost of construction which is iron of 26.6 per cent cement 3.6 per cent and sand 1.3 per cent.
“CIDB is expected to hold discussions with the Ministry of Domestic Trade and Consumer Affairs (KPDNHEP) in the near future to see the best way to help small contractors affected by the increase in building material prices,” said Datuk Ir Ahmad Asri.
Meanwhile, contractors are advised to be careful in quoting customers to ensure they are prepared for possible price increases based on current building material prices. For ongoing contracts, contractors are advised to renegotiate with the customer based on the latest price increase.
– Construction+ Online
Source: Ministry of Works