Are Contractors really over reliance on Cheap Foreign Workers vis-à-vis Our Government over-reliance on earning easy profit?

Overheard from Tony Yeo

Link – > Are Contractors really over reliance on Cheap Foreign Workers vis-à-vis Our Government over-reliance on earning easy profit?

September 23, 2014 

Are Contractors really over reliance on Cheap Foreign Workers vis-à-vis Our Government over-reliance on earning easy profit?

The Real Singapore had recently published a commentary piece by Mr Roy Ngerng titled “LOCAL CONSTRUCTION COMPANIES ARE TOO DEPENDENT ON CHEAP FOREIGN WORKERS”……..

I am not a subscriber to the Real Singapore Facebook page and would not have chanced upon it if not for a friend who had commented on the Topic.

As a professional involved in the local construction industry for the last 20 years, I felt compel to share my view on the piece not only because it was peppered with inaccuracies but were written in a way that do injustice to our construction companies who, whether you like it or not, built the many houses that Singaporean called their home. I also cannot help but felt that the content was in fact an attempt to take a cheap potshot at the Government (or the PAP) by disguising it under a title that says otherwise.

Even though Mr Roy Ngerng had started his commentary by stating that he was told by someone who is working in the construction industry about the things that he wrote about, I wonder what is exactly stopping him from carrying out some due diligent check to verify before writing this commentary.

To say the least, the commentary was premised on misinformation and flawed argument coupled with a strongly opinionated agenda to sow discomfort and score some brownie points.

Having said the above, I would like to put forth what I think is so wrong with the piece of commentary.

First and foremost, the notion that foreign workers are paid as low as $10 to $20 a day or $200 to $300 a month needs to be substantiated. Ngerng seems to take a very simplistic method of addition and multiplication to arrive at the monthly wages (i.e $10/day x 30 days = $300). This is already flawed to begin with.

I knew for a fact that the construction industry pays about $1200 to $1600 per month as wages to these workers depending on the type of certificates that these workers have. The ‘Skilled’ workers usually get more than those ‘Unskilled’ workers who has no specific skills. These wages include overtime calculated at 1.5-2.5 times of the basic salaries (overtime usually starts from 5.00pm on a weekdays and the whole of any Sunday or Public Holidays).

These information can be easily verified with any construction company if the author actually makes the effort to call them up for a survey. Of course, companies may not disclose such information to an ‘unofficial’ survey but again, this can also be verified with the workers themselves. Not those that had run into problems with their employers but generally those that have a good stable job with some of the more reputable companies. As of last count, there are at least a few hundred construction companies registered with the BCA under the category of A1 and A2 and I would think a random check across the segment would give a better perspective then just depending on the word of a ‘Friend’.

To dive a litter deeper into this, the cost that a construction company pays to the workers are not limited to just the wages of the workers, they would have to factor in the cost of accommodation, transportation, food, levy, medical expenses and insurances. A breakdown of these will be as follows:

1. Basic Wages + OT – $1600 (Skilled Workers) / $1200 (Unskilled Workers)

2. Levy – $700 (Skilled Workers) / $950 (Unskilled Workers)

3. Accommodation (Dormitory) – $350

4. Transportation – $40

5. Meal Allowance – $200

Total – $2,890 (Skilled Workers) / $2,740 (Unskilled Workers)

The information provided herein can be easily verified with dormitory operators, transport companies and MOM (for levy payable). Of course, the argument is that there will be employers who will try to circumvent and cut cost by providing less than desirable accommodation, dangerous transportation means and the like but that is an entirely different topics altogether and those employers should be taken to task. To focus back on this topic however and in view of the cost per worker that a construction company has to bear, I wouldn’t call them ‘Cheap Foreign Worker” to begin with!

Next, the Building and Construction Authority (BCA) had introduced a Buildability Frame works since 2001 for the purpose of steering construction companies away from reliance on labour intensive design and work methods and had in 2010, incorporate this frame work as part of the tender evaluation process for all government projects. This means that every proposal submitted by a contractor will be assessed for its buildability and constructability with emphasis on awarding to the company that best demonstrated an ability to construct at the most optimum price (not necessary the lowest price).The Government had in 2013, also make it mandatory for private developers to incorporate Prefabrication Technology if they were to maximise the GFA for their development which is targeted at improving productivity and rely less on manual workers on site.

In light of the high cost of labour (as shown above) and the incentives to adopt better design and construction methods, one wonders if any contractor would be in a capacity to compete if indeed they were still relying on ‘cheap labour’? If there were any to begin with!

 I would think Mr Roy Ngerng’s assertion of the said notion is therefore untenable.

My Ngerng also wrote about the perceived profit both the Contractor and the Government (I reckon that he was referring to HDB as the Government when in fact they are a Statutory Board of the Government and is not akin to being the Government itself) will purportedly earn in selling public housing and determined a ratio of 60%:40% with the Construction companies earning 60% and the HDB taking 40% with an additional remark that the 40% represent the real profit the HDB stands to gain. I must admit that I lost him there totally because I have no idea how he arrived at that conclusion or for that matter, how ‘that someone” whom he had heard this from came to that conclusion!

For discussion purpose, I will rely on information that are freely available on the web to debunk this myth.

Let’s take a HDB project that was put up for tender known as Yishun Neighbourhood 6 Contract 20 which closed on 1 July 2014. The lowest tender bid was lodged at $96,980,000.00.

The same project was launched for sales by HDB under the name Park Grove@Yishun and has the following selling price (without government grant): –

120 units of 2 Room – from $77,000

204 units of 4-Room – from $263,000

216 units of 5-Room – from $339,000

48 units of 3Gen – from 347,000

Assuming the cheapest unit is for the lowest floor (i.e. 2nd Floor) and an addition of $5000 for every floor above until the twelve floor and the thirteen floor being $5000 cheaper than the twelve, the average selling price per unit type and total selling price for the project will be as follows: –

120 units of 2 Room x ave $103,666 = $12,439,920.00

204 units of 4-Room x ave $289,666 = $59,091,864.00

216 units of 5-Room x ave $365,666 = $78,983,856.00

48 units of 3Gen x ave $373,666 = $17,935,968.00

Total Selling Price = $168,451,608.00

By Mr Roy Ngerng’s logic, he was essentially saying that 60% of $168,451,608 is earned by the Contractor and 40% of that is earned by HDB (referred to as the PAP Government). In perspective, this translates to $101,070,964.80 and $67,380,643.20 respectively.

On his argument that the Contractor stands to earn $101,070,964.80, I noted that the lowest bid received to construct the project is at $96,980,000.00 which is lower than the 60% that Mr Roy Ngerng is perpetuating. If Mr Ngerng were to account for the actual construction cost (i.e labour, material, machine and overhead) required by the Contractor to construct the project (which I don’t think he has the training and ability to), it may surprise him that the Contractor will be more than happy to earn a nett profit of 3% after accounting for all necessary labour, material, machine and overhead.

Without even factoring in the risk that a Contractor has to carry for the whole duration of the construction in terms of escalation in cost of all labour, material and machinery, delay and such, it is clear that the Contractor does not earn 60% from the total sales proceed of a public housing project.

There is obviously no merit in saying so if one were to consider the make-up of that bid price.

On his other argument that the HDB makes a real profit equivalent to 40% from the sales proceed of public housing, I think he cannot be more wrong. It is common knowledge that the HDB offer grant of up to $30,000 per unit for all eligible Singaporean. On the assumption that the applicants for the flats are eligible and were given an average grant of $20,000/unit for each and every of those units that was sold in the above project, these grant would amount to $11,760,000.00.

In short, the HDB does not make a real profit of 40%. At best, they would make $55,620,643.20 (about 33%). However, the HDB has to pay for the land cost . Of course, the next argument will then be the Government transferring the profit to SLA and HDB’s loss is SLA’s gain. However, to put things into perspective, the land cost that SLA is pocketing in the above example work out to approximately $95.79/ft² of Gross Floor Area (commonly known as the GFA and for simple estimation, is assume to be the total floor area of all the dwelling units combined). If one were to search the web and compare this to the land price under the Government’s private land sales programme, they would have noticed that the cost a private developer pays for a piece of land would range from $320/ft² to $350/ft² (for Executive Condo) and $580/ft² to $850/ft² (for private condo).

With that in mind, isn’t it not true that the Government (via SLA) is actually making a loss for the same piece of estate when it sold them to HDB at less then $100/ft²? Where then is the argument of a real profit? Again, it will be easy to argue that the Government should not even be accounting for the land and that it should be free but in real governance, even if one were to look at private limited company, such inter-company transactions need to be accounted for and carried out at arms-length. Not doing so would be irresponsible accounting at best and fraud at worse.

As pointed out above, it is a fact that foreign workers are not exactly cheap to begin with and Construction companies have been steering away from adopting labour intensive working methods to take full advantage of Govrnment programmes and incentives. The HDB (i.e the Government as referred to in Ngerng commentary) also does not actually make extra normal profit from selling public housing and on the contrary, SLA makes a loss for selling the same piece of estate to HDB when they could sell it to the private developers and make a profit from such land sales.

Mr Ngerng’s argument on Contractor’s reliance on cheap labour vis-à-vis the Government’s overly reliant on easy profit is therefore obviously wrong.

In my mind, there is therefore no need to flock a dead horse any further.

There’s one last question on my mind that needs to be cleared from Mr Ngerng’s commentary which is “what happens to those levies collected by the Government”?

I do not have an answer to that question but I could guessed that it was given back to the industry in the form of tangible benefit via Government Funding. For those who are working in the construction industry, I am sure they will be familiar with Government initiatives such as the PIP Fund, MechC, BIM etc. which are initiatives to improved productivity and encourage lesser reliance on foreign labour. To that end, I must say it does help the industry to advance.

I must however clarify that these are my guesses and nothing more than that. Perhaps one of our MP would raise a Parliamentary question about this at an opportune time but I will leave this at that for the time being.

In summary, I must say that though our Government are not perfect and we could well be unhappy with certain policies, the good work that they have done in the construction arena cannot be faulted without any concrete proof and mere assertion with the intent to cast aspersion should not be tolerated and should be corrected. Further, to drag the construction companies as a whole into petty politics for the purpose of scoring brownie point does a great disservice to the man and women who are contributing to building this nation.

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Image from population.sg -> A Sustainable and Vibrant Economy

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