North-South Expressway contractors request support measures

July 23, 2022 - 08:18
Twenty businesses belonging to the Association of North-South Expressway Contractors have submitted a proposal to authorised agencies to solve difficulties and support contractors and investors in implementing the North-South Expressway in 2017-20 period.

A section of the North-South Expressway. Many expressway contractors are facing difficulties as prices of raw materials rapidly increase. — VNA/VNS Photo

HÀ NỘI — Twenty businesses belonging to the Association of North-South Expressway Contractors have submitted a proposal to authorised agencies to solve difficulties and support contractors and investors in implementing the North-South Expressway in 2017-20 period.

The written proposal was sent to the National Assembly Standing Committee, the National Assembly Economic Committee, the Prime Minister and relevant ministries.

According to the contractors, right after starting the component projects, the contractor had to face the sudden increase of many key materials such as steel, fill soil, cement, asphalt, stone and yellow sand for concrete.

Facing considerable fluctuations in the prices of main materials from the third quarter this year, the contractor has sent several documents to the authorities to report on the situation and propose supporting measures.

The association said that from the end of February this year, the Russian-Ukrainian military conflict caused an increase in the price of crude oil on the world market, making the prices of diesel fuel and petroleum-based products of asphalt and absorbent resin rise rapidly.

Along with that, the freight rate increased by 70 to 150 per cent from the end of last year, which increased the construction cost.

Currently, the price of filling soil increased by about 30-50 per cent, and by 154 per cent in some bidding packages; yellow sand increased by about 15- 40 per cent, even 187 per cent in some packages; asphalt by 35-50 per cent, crushed stone 30-45 per cent; diesel fuel 138-163 per cent; steel 40-70 per cent; and cement 20-47 per cent.

Contractors providing transportation services announced that they would continue to increase freight rates by 30-40 per cent.

Currently, the contract price adjustment formula is only applied for seven main factors labour, construction machinery, asphalt, steel, stone, sand, and cement.

The price of filling earth material is considered fixed, not adjusted during contract performance.

Meanwhile, with a very large volume of backfill, the value of filling soil material accounts for a large proportion of the contract price, from 15-25 per cent.

"The price hike of the main materials, excluding changes in construction machinery and labour, increased the total construction contract by 20-30 per cent. With too large price fluctuations, the refund money for the completed volumes under the contracts was not enough to buy supplies and materials to continue construction," said the association.

Also, most suppliers and mine owners require a 100 per cent payment mechanism for stone, steel, concrete, diesel fuel and asphalt, while the construction on the site has to comply with the building, acceptance and payment process.

The cycle from gathering materials for construction to the time of acceptance, payment and receipt of money from investors was at least 2-3 months.

Many contractors have a serious cash flow imbalance. Although the contractors have tried hard to manage cash flow and put all resources into the project, the accumulated cash flow imbalance over the past year is too great. Many businesses fell into financial distress and were on the verge of bankruptcy.

"In fact, in the past 3-4 weeks, in many component projects, contractors could not maintain the progress and intensity of work as in the previous period. If there were no proper solutions, the risk of breaking the schedule was unavoidable," the associate said.

According to the association, the values of contracts are based on the price index published by the locality where the project passes through.

However, most of the localities where the project passes, such as Ninh Bình, Thanh Hoá, Nghệ An, Bình Thuận, Ninh Thuận and Đồng Nai recently have not had any highway projects so the publication of material prices and price indexes issued by the locality is only suitable for smaller-scale projects.

If bidding packages of North-South Expressway component projects were calculated on the local price index, the average price compensation coefficient was only 1.8-8 per cent, while material price fluctuation was 20-30 per cent.

This shortcoming was confirmed in writing by several localities, such as Bình Thuận and Đồng Nai, which confirmed that the North-South Expressway construction was not included in the list of local price indexes and requested the investors to implement according to the provisions of Decree 10/2021 of the Government guiding the management of construction investment costs.

So far, the ministries of Transport and Construction had not offered any measures to lift the difficulties faced by the contractors, said the association.

Determining the deadlines for projects was not far. The association proposed to relevant agencies to consider and apply the provisions of Article 27 of Government Decree 10/ 2021/NĐ-CP on the management of construction investment costs.

The Ministry of Transport should hire a consultant based on the actual fluctuations of the main material prices of asphalt, steel, sand and cement during construction.

The ministry should apply an exclusive price index for bidding packages as the basis for calculating and adjusting contractors' prices and adding road embarkment materials to the formula of contract price adjustment.

It should allow contractors to apply relevant provisions in the Civil Code 2015 on contract performance when circumstances change and the consequences of force majeure re-set the schedule for the rest of the construction volume.

For component projects implemented in the form of PPP, the association requested that contractors be allowed to adjust contract values when the materials and fuel inflation index during construction exceeds the calculated inflation index, increasing the total investment. — VNS