Construction firms worry about margins as cost of labour rises

Ten companies told BT that in recent months they have either had their workers poached or heard of such instances in the industry. ST FILE PHOTO

Updated from : The Business Times, 8 Dec 2020

THE Ministry of Manpower (MOM) intends to allow employers to bring in more existing work pass holders from this week, and new migrant workers in larger numbers subsequently, amid challenges faced by the construction industry as players battle a labour crunch.

This was revealed in response to queries by The Business Times after several construction firms spoke of compressing margins amid rising costs due to a clip in inflow of foreign worker supply and poaching.

Ten companies in the construction industry told BT that in recent months they have either had their workers poached or heard of such instances in the industry. As the industry struggles to meet deadlines, some players are willing to pay higher salaries for workers.

Two companies told BT they had lost four to five workers since October. Another said that at least 10 workers had requested for transfers, though most eventually stayed on.

In response to queries from BT, a spokesperson from MOM said that the ministry is aware of the manpower shortage in the industry, and is working to address the issue.

“We are completing our review and intend to allow employers to bring in more existing work pass holders from this week, and new migrant workers in larger numbers subsequently, subject to the appropriate pre-departure tests and stay-home notice measures to reduce risk of importing Covid-19 cases and protect public health,” said the spokesperson, adding that more details will be announced soon.

Frankie Ciah, agency director of recruitment firm HRS Holdings, said his agency has been receiving requests for more workers and with wage bumps of up to 30 per cent from the average range of S$28 to S$35. Since the “circuit breaker” period ended, some companies have been asking for an additional 50 to 60 workers per month, compared with the usual 10 to 15 workers.

Most industry players said the situation could have been exacerbated by a new scheme that facilitates transfers of those on a work permit. During a so-called “non-consent period” of 21 to 40 days before a worker’s permit expires, workers can be hired by another employer without their current employer’s consent.

Introduced by MOM in partnership with the Singapore Business Federation, the non-consent period is part of a temporary scheme allowing companies to hire foreign workers across sectors and manage manpower issues arising from the Covid-19 pandemic. The scheme is currently supposed to run till February 2021.

Construction companies have therefore been raising wages to prevent workers from leaving, adding to the pressure on margins.

“Traditionally, the labour costs have always been very challenging to control. This portion is the (one) that is always running out of budget . . . with the increase in this poaching of workers and the increase in labour costs, obviously the companies will be further burdened,” said the director of a construction firm, who spoke on the condition of anonymity due to the sensitive nature of the issue.

He has raised the wages for most of his 100 workers by S$3-5 per day, which has increased his labour costs by 15-20 per cent.

Another subcontractor told BT that after some of his workers were poached, he increased the salaries of his remaining workers by at least 10 per cent. “We have no choice, if we don’t increase, they will leave,” he said.

He estimates that his profit margins will fall to about 3-5 per cent, compared with 5-10 per cent before.

Some companies are worried that they might not be able to turn a profit at all. A subcontractor, who asked to be identified as Oh, said: “Just as we were on the road to recovery, this labour crunch came along. I don’t think there will be any more margins.”

Mr Oh had raised the wages of some of his workers by 10-15 per cent, while the highly skilled were offered up to 25 per cent more.

The executive director of another construction firm said profit margins are already “smaller as tenders had been competitive”, especially in the past two years. His firm will turn in losses for two to three projects, though the majority of them will still be able to break even or deliver a small profit.

The mid- to long-term impact could be higher prices of building and construction work in general.

“Once all these costs go up, it’s very hard to bring it down again,” said Mr Oh. “For new projects, (firms) will have to be quoting slightly higher than the current projects.”

The group chief executive of one local developer said smaller players in the industry could end up losing big time, as they might have no choice but to tender for projects at very low prices in order to win. He therefore hopes the government will pay more attention to productivity than cost when awarding future contracts.

Public sector construction tenders are awarded based on the price quality method evaluation framework that take into account both price and non-price attributes.

Other suggestions to help the construction industry included temporary flexibility in employment rules and certifications.

Allan Tan, managing director of United Tec Construction, said there are many skilled Chinese nationals above the age of 50 who cannot be employed here because work permits for non-Malaysians in the construction sector can only be issued to those below 50.

“When they are 50-plus, this is the prime of their career,” said Mr Tan, who added that such skilled Chinese tradesmen are in fact “highly demanded in any part of the world”.

He said foreign workers could also be temporarily exempted from taking certifications in order to work here.

MOM requires non-Malaysians to have a Skills Evaluation Certificate qualifying them as basic skilled construction workers.

Mr Tan added: “If you want to prevent the poaching from going on, why not expedite the process (and) increase the supply to meet this current urgent shortage? And we can get the productivity we want.”