The price fluctuations of building materials have a strong impact on the total investment of projects
In the curent time, the fluctuations in steel prices in particular and construction materials prices in general , are strongly affecting the total investment of infrastructure projects, especially public investment projects. Among them, 11 component projects of the East North-South Expressway were strongly affected by the bidding package contracts were all signed from the end of 2018 and the beginning of 2019 until now.
Steel prices and cement prices are on the list of building materials at component projects on North-South expressways, using public investment capital and are allowed to adjust prices according to the construction price index announced by the local Department of Construction. This condition is specified in the contract of signed projects. However, contractors at these projects are currently “standing still” because the steel price since the end of last year, which has increased by 35-70% compared to the price signed in the contract. Meanwhile, the announcement of construction price index by the local Department of Construction will be delayed, so it will not be able to accurately reflect the price fluctuations of materials, which consequently leads to heavy loss for contractors.
For example, Vinaconex Joint Stock Company is the leading general contractor in the winning consortium of 3 largest public investment projects on the North-South route (Phan Thiet-Dau Giay; Vinh Hao-Phan Thiet; Mai Chau-National Highway 45). ) with a total value of VND 8,000 billion. Due to the sharp increase in steel prices from the first quarter of this year, especially in April and early May, this business is estimated to lose about 337 billion dong from steel price fluctuations compared to the price in the signed contract. All three packages use about 58,000 tons of steel. When signing the contract, the price of steel is about 11,300-12,100 VND/kg. Now, the price of steel is about 17,400 VND. That is a price increase of about 65.9% per kilogram of steel.
A representative of another project contractor who is responsible for the construction of dozens of large and small bridges and underground culverts in a related project, said that the business could not stand the increase in steel prices up to 70% from January 2021 to now… Similarly, the price of cement also increased by about 40,000 VND per ton compared to the price at the end of 2020.
Estimated by contractors, if the signed project has a total investment of several thousand billion dong/project, a loss of several hundred billion dong will result because the price of construction materials increases. The solution that allows price adjustment according to the price index method is applied, but it is not feasible because this method is announced by the locality based on the price fluctuations of construction materials. While adjusting, the local announces the new price book and the investor and contractor will multiply the payment value by the adjusted price. However, because the adjusted and announced prices are not close to reality, it is difficult for contractors to be assured.
According to representatives of some contractors, the current law allows direct compensation for price fluctuations, on the basis of dissecting the material volume of each bidding package. At that time, the investor and the contractor will take the actual input price minus the price in the approved unit price and then multiply it by the actual volume to get the offset value. This method
is both close to reality and ensures to cover price fluctuations, avoiding prolongation and making it difficult for contractors in the payment process.
A few days ago, the Ministry of Transport sent an express dispatch to the investors of transport infrastructure projects, requesting an urgent proposal to assess the impact of steel price fluctuations on construction and construction activities. propose solutions to minimize the negative impact of the epidemic on the construction of each project.
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