Construction costs bloated by project delays, corruption

Construction firms are spending about 15 to 35 percent of their budget per project to cover costs incurred from delays and corruption.

Speaking at the Fourth Philippine Construction Industry Congress yesterday, Ronilo Balbieran, vice president for operations at REID Foundation, said information gathered from interviews with industry players showed construction companies spend up to 35 percent for costs of doing business or those incurred from delays in the project, as well as corruption from some government employees.

“We combine the cost of money because of delayed permits, and then of course, there is some form of political interventions that would cost them money in general. That’s how they describe it,” he said.

To cover these costs and keep a net income margin of eight to 15 percent in the project, companies may have to spend less on some parts of the construction value chain such as raw materials and labor.

“Who is going to pay for that cost? That means they had to spend less on materials or they have ghost laborers. Or they can say they will use equipment even if they didn’t purchase any equipment,” Balbieran said.

He said with the implementation of the construction industry roadmap and the Ease of Doing Business (EODB) and Efficient Government Service Delivery Act, it is hoped this problem would be addressed.

“We hope the stars are aligning because you have that clamor from the industry and it is timely the EODB law was enacted to really address that,” he said.

EODB aims to get of rid of bureaucratic red tape by requiring government agencies to complete transactions within a specific period such that simple transactions are processed and acted upon within three days, those considered complex within seven days, and highly technical ones in 20 days.

For his part, Trade Secretary Ramon Lopez said the action plans identified under the roadmap as well as the EODB law are seen to reduce, if not eradicate, those costs.

“Of course with technology and new ways of doing it, EODB, bidding procedures improvement, then hopefully it would minimize the other costs,” he said.

To eliminate those costs, he said there is a need to finetune processes for bidding, procurement and selection of accredited contractors.

“With a proper system, these costs can be removed,” he said.

Under the roadmap, the value of the construction industry is targeted to grow to P130 trillion by 2030, from just P2.3 trillion in 2018.

To achieve this growth, the roadmap identifies action plans on communications, infrastructure development, professional and skills upgrade, digitization and modernization of processes, policy reforms, governmentindustry-academe partnership, and construction services exports and outsourcing.

Without the roadmap, the industry is projected to just reach P43 trillion.

To help further push the construction industry, Lopez said the government is also looking to institutionalize its flagship program for infrastructure development Build Build Build, through a law which would ensure a certain percentage of the budget is allocated for projects even after the end of the current administration.

“It could be a percentage of the budget to keep to this level if we want to really continuously build infrastructure and catch up. After the Duterte administration, you don’t know if they will keep that kind of aggressive infrastructure program of five percent of GDP (gross domestic product),” he said.