Foreign construction firms clinch bulk of plum projects as local players get sidelined

Domestic firms won only 6 of 22 contracts for the Thomson Line.

Homegrown construction firms are struggling to obtain project wins in spite of Singapore’s robust construction pipeline. Foreign firms are beating local companies when it comes to clinching projects, as local companies continue to battle manpower problems and high labor costs.

According to a report by DBS, domestic firms won only 6 out of 22 contracts for the Thomson Line, and most fall below the line’s average project value.

The Land Transport Authority has awarded close to S$8bn worth of contracts to main contractors for station construction and tunneling work alone, but DBS notes that key beneficiaries for main contractor work are mainly the foreign construction firms.

“Of the 22 Thomson Line stations, we observe that six were secured by local companies. The average value of each contract is S$311m and the median contract value from the line is S$316m. The average value of contract clinched by Singapore companies is below the Thomson Line’s S$311m-S$316m average at S$227m,” noted the report.

Local construction companies underperformed foreign competitors by 6 to 16 stations, and DBS stresses that companies looking to fill order books will have to deal with strong competition from foreign firms at lower tender prices.

“To ensure that they benefit from the current project pipeline, these companies need to be winning the projects. We believe given strong competition, projects have to pick up pace for local contractors’ outlook to
reverse for the better.Projects need to pick up and labour costs must ease for local companies to improve project wins,” DBS noted.

Here’s more from DBS:
We believe projects are likely to be rolled out at a measured pace due to labour constraints. If project activity is high, opportunities will become available for smaller players since more construction companies will be tied up with ongoing projects.

This will also mean higher tender prices and better profitability for both foreign and local contractors. Given labour constraints, we feel that the government will roll out the projects at a measured pace.

Project pipeline is encouraging but costs and tender prices remain a challenge. We are therefore Neutral on the sector for now. We look for tender prices to improve and projects to accelerate before turning positive on the sector.