More construction firms join winding-up list

Despite stronger demand in the sector, construction firms are facing manpower and cost issues such as higher foreign-worker levies.
Despite stronger demand in the sector, construction firms are facing manpower and cost issues such as higher foreign-worker levies.ST PHOTO: KUA CHEE SIONG

Labour shortage, cost issues and industry slowdown among the likely causes

More construction companies are winding up amid the continued manpower crunch, cost pressures and slow industry growth.

Last year, 51 firms filed petitions for compulsory liquidation, up from 27 the previous year.

A further 36 firms were wound up, compared with just 13 in 2013.

Yet demand in the sector is stronger than ever with $37.7 billion worth of contracts awarded here last year.

The figures for both petitions filed and firms wound up were the highest in the past decade, according to data from the Ministry of Law's Insolvency Office.

The rise is likely due to accumulated pressures rather than any specific recent factor, according to Singapore Contractors Association president Kenneth Loo.

"Firms might look at the situation now and think... manpower shortage, cost pressures, the industry is not doing that well - maybe it's time to throw in the towel," he said.

For the whole of last year, the sector grew 3 per cent, down from 6.3 per cent in 2013.

There are about 10,000 registered contractors in Singapore.

But Mr Loo stressed that it is hard to generalise about the state of the industry as a whole, with smaller players tending to be be worse hit.

The overall numbers of petitions filed and firms wound up in Singapore have risen since 2007.

But the proportion of construction cases has been growing.

The sector accounted for about a fifth of all firms which filed for compulsory liquidation last year.

This is up from 14 per cent in 2013 and 10 per cent in 2012.

Similarly, more than a fifth of the firms wound up last year were from the construction industry, up from about 10 per cent before.

The main pressures faced are a shortage of workers and higher labour costs, said Mr Loo.

Foreign-worker levies have risen several times in the past few years, although this year's scheduled hike has been deferred to next year.

  • Some try to cope by taking on diverse jobs

    To cope with industry pressures, some companies are diversifying the sort of work they do - although that, in turn, has meant more competition.

    "A lot of construction firms have expanded their scope of work," said ASR Building and Conservation contracts manager Joe Tee. "Initially, they might just be doing interior work and then, slowly, they begin to do repair work, additions and alterations."

    This means more competitors for the same projects. "Our companies are doing the same to remain competitive," he added, referring to ASR and its sister firm Aegis Building and Engineering. The firms used to do smaller addition and alteration works, but have recently taken on a greater number of larger refurbishment projects.

    They have also branched out into providing labour for maintenance work in buildings such as hotels.

    The two firms also work together to reap economies of scale. Mr Tee added: "We can plan our manpower deployment in such a way that there is no downtime."

    Janice Heng

These pressures do not just hit subcontractors on the ground.

"Subcontractors are quoting much higher than before and it can be more than what we budgeted," said Authentic Builder contract manager Lim Tian Seong. "We cannot predict what the price of finishing works will be in a year's time."

Mr Loo also noted that many small firms are family-based and face succession issues. Some have already closed as the younger generation did not want to take over.

This year could see a rise not just in firms that wind up, but insolvent construction firms in general.

For each of the past three years, the sector saw 2,300 to 2,400 newly insolvent firms. As at end-May this year, there were almost 2,000 insolvent construction firms, according to the Singapore Commercial Credit Bureau.

Demand, however, is set to remain robust.

The Building and Construction Authority has predicted that $29 billion to $36 billion worth of contracts will be awarded this year, with similarly strong construction demand over the next five years.

But the pressures will continue to build. In July next year, the monthly levy for unskilled work permit holders in construction will rise to $650 a month, up from $550 now.

A version of this article appeared in the print edition of The Straits Times on July 27, 2015, with the headline 'More construction firms join winding-up list'. Print Edition | Subscribe