The best way to produce competitive Bumiputera contractors


by Koon Yew Yin

I recently published an article with the title, “Room for Competitive Bumiputera Companies – A Wasteful National Mission”. My intention was to support Petronas Chairman Tan Sri Shamsul Azhar Abbas who is under fire from the Malay Economic Action Council (MTEM) for allegedly marginalizing Bumiputera companies and favouring more competitive foreign companies.

In fact MTEM has conveniently forgotten that in 2010 and 2011 alone, Petronas awarded a huge sum of about Rm 74 billion worth of contracts to Bumiputera controlled companies. Apparently this is not enough for MTEM which has called for Tan Sri Shamsul and the board members of Petronas to resign. MTEM expects to get most of the contracts irrespective of whether they are competent to undertake the contracts.

This politicking against Petronas – a national company with all Malaysians as stakeholders – is certainly not good for our economy. I wish to emphasize that Petronas is not a Malay company and Malay cronies of UMNO should not expect hand outs and contracts as if we are still living in the NEP era.

It is time that all Malay business enterprises and individuals grow up and realize they have to become competitive if they wish to survive in the business world. Nowhere in the real world is there preferential treatment for Bumiputera or any other ‘putera’!

Continuously giving out contracts to Bumiputeras as MTEM is calling for – without competitive tenders – will make them more inefficient and result in poor quality work. At the end of the day, it will be all Malaysians who will have to bear the collapse of a crony-driven and Malay-oriented Petronas if it loses its standing in the global market.

Giving out contracts without a full tender process is akin to corruption. Why a closed tender or Bumiputra favouring policy has to be pursued by Petronas needs to be openly justified by MTEM rather than swept under the carpet and hidden by the veil of threats.

The best way to produce efficient and competitive Bumiputera contractors

I would like to share my experiences in the contracting industry with Bumiputera contractors so that they can understand why they have failed and what needs to be done by the government to correct this situation.

Most difficult huddle is to submit the cheapest tender

Firstly, it is necessary to warn that contracting is a difficult business although it is so easy to register as a contractor in Malaysia. It is not well known that there are more failures and bankruptcies in contracting than in any other business. Another little known fact is that almost all construction projects are NOT completed within the original scheduled time. This explains why one can often see uncompleted or abandoned projects.

A key point to note is that contractors – under an open tender system – always have to produce good work at the cheapest price.

In order to submit the cheapest tender, the contractor must be very optimistic in all his assumptions. He must assume that he will not encounter any cash flow difficulties and that he will always get his progress payments on time.

He must also assume that he will not encounter any difficulty in getting all the required materials to avoid any delay and also that there are ample workers for him to choose.

Furthermore, he must also assume that he will not meet any inclement weather or other adverse factor during construction. Invariably, some of these assumptions will be proven wrong, thus delaying completion. Often, the infrastructure will cost more to complete than provided for in the contract.

The importance of teamwork

Teamwork is important in all business endeavours. It is more so in the contracting business. Every contractor must realise that his success is not going to be determined by his own knowledge or abilities. It is determined by his ability to develop a great team. His co-workers will help determine the level of his success.

Every efficient contractor must have a reliable team comprising managers, sub-contractors, material suppliers, foremen and skilled workers. All the team players must cooperate with one another. Their main goal must be saving cost. If they cannot complete the contract within the tender price, all of them will be affected.

Construction material pricing

There was no material price escalation clause in the conditions of contract before I became the Secretary General of the Master Builders Association. During the unprecedented oil crisis, building material prices shot through the roof. As a result, many contractors could not complete their contracts for schools and other projects. After several appeals the Public Works Department (PWD), now known as Jabatan Kerja Raya (JKR) and Tengku Razaleigh, the Finance Minister then, eventually allowed cement and steel for price variation reimbursement.

This was only a partial solution as hundreds of other items were excluded.

Without a protective price fluctuation clause for the other items, contractors are exposed to risk. Invariably, most materials would increase in price due to inflation. Contractors require many years of experience to anticipate such price changes and to make provisions for them whilst at the same time not overpricing their tenders and losing the bid.

No two contracts are exactly the same

Construction of a building is always akin to making a prototype. The process is much more difficult than manufacturing any product where there is repetition. In the construction of buildings or other engineering works, there is very little repetitive work. Every construction site is different.

On top of this, there may also be inexperienced supervisory staff that can create a lot of difficulties for the contractors. Invariably, by the time all parties get used to the routine, the scheduled time is over.

Financing

Most contractors do not have sufficient capital to finance their undertakings.

Contractors generally do not have fixed assets like most manufacturers. Unfortunately, banks do not accept moving assets as collateral for a loan. Without bank financing, contractors will find it more difficult to undertake their business.

Beginning at the bottom: key to success

I have provided some insight into why contracting is not a business that is as easy or profitable as it is commonly perceived.

There are other factors explaining why or how some of the most successful tycoons associated with the construction industry have managed to get to where they are. Perhaps the main one is learning by starting at the bottom. For example, Lim Goh Tong of Genting began his working career as a scrap iron dealer and a contractor; and Yeoh Tiong Lay of YTL Corp. started off as a small general contractor.

Generally, Bumiputeras are not interested in managing small businesses and earning small profits. Because of the NEP, many have hopes of securing concessions for big deals. There are relatively few Bumiputeras involved in small and medium-scale enterprises (SMEs).

More Bumiputeras should start by becoming traders for building materials. The business skill they can learn from these humble beginnings will carry them a long way. I am sure some of them will eventually become good contractors if they learn the trade at the bottom.

Importance of skilled workers.

There are so few Bumiputera construction foremen, carpenters and other skilled workers. If you were to go into any construction site, you would see the truth of what I am saying. How many Malay carpenters have you seen in KL?

Without skilled Bumiputera workers, it would be more difficult for Bumiputera contractors to succeed. More Bumiputeras should be encouraged to work as apprentices in the construction industry.

Conclusion: Half-baked contractors are not in our national interest

Contracting is one of the most difficult businesses and it takes a long time to produce competent contractors.

It is dangerous to quickly produce half-baked ones as they will soon find themselves in financial difficulties and require bailouts. The bankruptcy record shows that many debtors are Bumiputera contractors unable to pay back the loans given by government-controlled financial institutions.

The government must change its policies which have proven unworkable. There is no urgency in producing more Bumiputera contractors as many of the key industries e.g. the banks, toll roads, water, electricity, plantations, commodities, etc are already under the control of Bumiputeras.

Our government must not be narrowly communalistic and should make use of all the groups, irrespective of race, that are more efficient in the contracting business.

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  1. #1 by Bigjoe on Monday, 11 March 2013 - 11:12 am

    Mahathir just went out scare-mongering the Malays that if they can’t get back Selangor, then Malay rights are doomed. My reply to him is that if that is true, then the Malay rights are already doomed and ITS HIS FAULT.

    Truth is the Malays don’t lack capital, they don’t lack political advantage. What they lack is SIMPLY HUMANS SKILLS & CAPACITY – that capacity and skills begin with simply walking away from corruption and abuse of power and focus on education and skills. If UMNO/BN can’t do that, taking back Selangor, don’t help in anyway. In fact having to fight for Selangor, to try and retake it on a meritocratic manner, already does far far more…

  2. #2 by Bunch of Suckers on Monday, 11 March 2013 - 11:23 am

    What competitive Bumi? The snaky Bakuthair already spoiled them with spoon-feds. They have to stand and walk with helping-sticks… They can’t stand and walk without those sticks and spoon-feeds…

    The snaky Bakuthair ripped off billions into his pockets and made the junior snake to be billionaire… Those BN cronies are millionaires, too!!!!

    To save Malaysia, get rid off the UMNO/ BN suckers in Putrajava…

  3. #3 by Bigjoe on Monday, 11 March 2013 - 11:33 am

    One more thing. If the Mahathir is right that the Malay right is doomed if they don’t take back Selangor, then the Sulu’s grievances and claims are just as completely legitimate through no fault of their own..

    Think about it..

  4. #4 by SENGLANG on Monday, 11 March 2013 - 11:43 am

    fully agreed with Mr. Koon’s view, but it is almost impossible to achieve. A child that have been pampered over 50+ years will not able to change over night. More so the father still believe that this child should be treated that way. The great grand father who has since produced so many pampered children are still believe that these children should been given the hand out other they will died of hunger. Sorry to say that Mr. Koon’s can be use as a class room lecture notes but not as Malaysian political agenda for change.

  5. #5 by lee tai king (previously dagen) on Monday, 11 March 2013 - 12:43 pm

    The cornerstone of all umnoputra’s ketuanan right – rubber, perfect elasticity. Prices are infinitely stretchable (always upwards and never downwards). And contractual time too. A three yr contract may be completed and handed over 10 yrs later. And and of course, standards. This one is important. Unlike prices which is stretchable only in the upward direction, standards of work for umnoputras may be worked in the opposite direction; i.e. reduction in standards and and in quality of workmanship. So roof may collapse. No matter. Building and bridges may snap into two. No problem. It just means that there are more of the same job for everyone.

    JJ1B.
    RR1C!

  6. #6 by SENGLANG on Monday, 11 March 2013 - 12:45 pm

    Start from the bottom? Agreed but not practical. Even the Chinese young generation will not start from the bottom today, what to say of the Malay youths to start from the bottom. They may best to mat rampit.

    When the fundamental is wrong there is no way to produce the expected results.

    NEP concept was a noble one but it has been highjack by the UMNO band dit along the way. NEP has been the poison of of growing the BUMI instead of its medicine simply the UMNO politician use it as a tool to enrich themselves and cronies with the main purposes of securing their political support. IT is no returning with out a fundamental change

  7. #7 by SENGLANG on Monday, 11 March 2013 - 1:23 pm

    Financing

    Many of the contractors do not have fixed assets but many sure have expensive motor vehicles with HP term stretch until 7-9 years.

  8. #8 by john on Monday, 11 March 2013 - 2:32 pm

    They already know ALL THESE ! Except fall short of direct handouts (close case Cowgate), Contracts without tender and negotiated (under BUmno armbit) IS GOD SEND ! Get Quick Rich Route ! How to forsaken now, is in the system / bloodstream perpetrated, encouraged since MMKutty regime days. (eg. those contracts on attire, food, transport for any ‘govern’ events sa. NSC, are all EASY MONIES / PICKINGS ! ) Albeit, there are ‘bumi’ contractors (not ali baba) but still not without crutches totally – hence, essence of competition par excellence is lost !
    It has been under such ‘clandestine’ operation (pretext of NEP to help Melayu) that MMKutty able to SAPU Billions diam-diam away till now.
    Hence, only way for a fresh re-start ( the very least ) is BY A B U !!! now.

  9. #9 by rjbeee on Monday, 11 March 2013 - 4:28 pm

    Another waste of space..Bumis semua mahu….
    Police, army, petronas, civil service …all given how to work..all getting fat…still complain not enough 30% not achieved..bull shi….

  10. #10 by cseng on Monday, 11 March 2013 - 4:38 pm

    There is no way to ‘produce’ competitive company!.

    You can only ‘produce’ and ‘give’ a company rich, filthy rich, yet it still not competitive.

    One could only ‘earn’ to be competitive, hard way, but the only way.

    Competitive is hard, if you don’t want hard, how to be competitive?

  11. #11 by cseng on Monday, 11 March 2013 - 4:39 pm

    Only in NEP you get to see ‘soft’ competitive…

  12. #12 by SENGLANG on Monday, 11 March 2013 - 8:26 pm

    The Malays are not as weak as what UMNO leaders like Mahathir say. They are weak because they have been weaken by purpose by the those UMNO politicians as this is the best way to controlled them

  13. #13 by tuahpekkong on Monday, 11 March 2013 - 10:36 pm

    I think most Bumiputera contractors, even after getting Government assistance for the past 30 years, still prefer negotiated or closed tenders. The reason is simple. Prices can be marked up considerably higher in such tenders and profit margin can be extremely high. They can then find sub-contractors to carry out the job for them at a much lower profit margin and they can proceed to look for other high yielding contracts. It is much easier to get rich this way rather than to do the work themselves. To meet your criteria to become a competitive contractor would be a tall order for many.

  14. #14 by chengho on Monday, 11 March 2013 - 11:01 pm

    ABCD; BN should emulate CCP how they rule middle kingdom

  15. #15 by ENDANGERED HORNBILL on Tuesday, 12 March 2013 - 4:18 am

    Most non-Bumiputras are willingly sharing their expertise and experience with bona fide Bumi contractors and businessman in the normal course of doing business. there is no racism in real business.

    UMNO is mad to think otherwise and to continue divide and rule policies across the board in Malaysia Boleh. The slew of parochial practices only emasculate their own kind through lack of competitive exposur, the only sure ingredient to producing a vibrant and vigorous business.

    Kudos to you, Yew Yin. Though you may not be the top 5 richest men in Malaysia, you have done well to contribute your expertise and philanthropy as a caring Malaysian. When will UMNO and Mahathir ever learn? NEVER! That’s why we must put them out to some pasture to graze forever.

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