Say goodbye to fat margins

AFTER the Mass Rapid Transit (MRT) 3 and High Speed Rail project to Singapore were shelved, the signal from the deferment of those projects sent a signal that cost and expenditure preservation was a priority in the minds of the Government.

Those multi-billion ringgit projects were postponed because of the enormous cost to the Government. At the same time, questions were asked about the ini- tial cost given that further examinations and proposals meant that those projects could be done at a lower cost.

Fast forward to yesterday and it was reported that the Government was looking to cut the cost of the MRT 2 project.

The spiralling cost of the infrastructure projects were relooked at given the strain it was putting on Government finances. At RM32bil, MRT2 would cost more than the first line and the initial projections for the cost of MRT 3, up to RM45bil, was to be much higher than wither of the first two being constructed.

The recommendation to cut cost on MRT2 is not good news for the construction sector that is already reeling from the withdrawals of mega projects that would have benefited the industry.

Slashing costs on MRT2, which in some ways was to compensate for the much lower costs of MRT1 which burdened contractors, would mean that margins for construction jobs in Malaysia will not be what it used to be in the past.

Contractors in Malaysia hasve had it much easier in the past given the fatter margins they enjoy compared with many other countries. It also suggests the reluctance by Malaysian contractors to actively seek new jobs overseas where may of the large players have ventured to with mixed results.

The new reality is that construction jobs in Malaysia will not be the goldmine for contractors going forwards. Cost optimisation and value engineering will be looked at to ensure that public-funded projects will be done at the right price which in turns puts more pressure on contractor margins in the future.