The Ministry of Construction wants to be "resolved" after a sudden surge in material prices

DNHN - The Ministry of Construction proposed that the Government appoint the state agency competent to decide on investment to direct the project owner to report on assessing difficulties, problems, and causes (subjective and objective); clearly define the parties' responsibilities and the legal basis for contract adjustment (including BOT contracts).

The Ministry of Construction has just issued a paper to the Prime Minister outlining the problems and hurdles in construction investment cost management, as well as remedies to these difficulties.

According to the paper, the cost of building materials typically accounts for between 50% and more than 70% of the construction cost estimate, depending on the kind of work. In civil works, construction steel, cement, sand, and stone account for 16.31%, 2.87%, 1.32%, and 1.58%, respectively. The proportions of construction steel, cement, sand, stone, and asphalt used in traffic works are as follows: 9.07%; 1.96%; 3.96%; 4.49%; 4.98%.

Prices of raw materials, fuel, and building materials, such as steel, cement, asphalt, gasoline, oil, sand, and embankment, tend to change from the end of the fourth quarter of 2020 to the first quarter of 2022.

Fuel and several important building materials began to fall in price beginning in April 2022, with steel falling the most, now at 15,000-16,000 VND/kg, similar to steel pricing in the second quarter of 2021. However, compared to the fourth quarter of 2020, fuel costs and prices of other critical minerals are still high as of July 2022.

Construction steel prices are around 25% higher; cement prices, depending on the brand, are approximately 15%-20% higher; asphalt prices are approximately 40% higher; and diesel oil is approximately 25,000 VND/litre, roughly 100% higher than the fourth quarter of 2020.

The Ministry of Construction assessed that for imported raw materials, fuels and materials (such as gasoline, asphalt, iron and steel,...), supply and prices depend on the global market and are affected by the Covid-19 epidemic, the impact of geopolitical factors, the conflict between Russia and Ukraine, disruption of the global supply chain,...

Prices for locally produced commodities are impacted by the rise in fuel prices, which raises manufacturing and distribution expenses. In addition, the government prioritizes providing investment funds for critical infrastructure and transportation projects, as well as deploying stimulus packages under the Program for Economic Recovery and Development Following the Covid-19 Epidemic. As a result, demand for construction materials has surged in comparison to past years, particularly for unburned construction materials (such as embankment, sand, stone, and gravel...).

Meanwhile, the task of forecasting, regulating, planning, and deciding the number of supplies is mostly not timely, resulting in local shortages at the building site, according to the paper signed by Deputy Minister of Construction Bui Hong Minh. Materials prices (sand, backfill, etc.) have risen considerably in certain areas.

The exceptional increase in building material and fuel prices, as monitored and synthesized by communities, mostly impacts contracts signed before the fourth quarter of 2020 and earlier, as well as large-scale contracts.

Small-scale contracts of 20 billion VND or less will be signed beginning in 2021. (according to the law on bidding, small-scale contracts must be performed in the form of package contracts).

According to the Ministry of Building, implementing contracts based on adjusted unit pricing will reduce risks and repercussions from construction material price variations.

However, the selection of contractors, the establishment, and the signing of construction contracts are all dependent on the price source/construction price index, as well as the price adjustment range agreed upon by the parties in each contract. contract/contract bundle in particular In truth, the contract's execution has been fraught with challenges and problems in the past.

To solve the aforementioned challenges and problems, the Ministry of Construction requested that the Government assign the People's Committees of provinces and cities to actively coordinate the inspection, review, and overall evaluation of contracts with adjusted unit pricing. the publication of building material prices and construction price indices in the management area beginning in 2021, enabling the publication of market pricing, justice, and transparency

If the price of construction materials and the price index announced by regulations do not accurately reflect the price movement of construction materials on the market, localities shall supplement the announcement of construction materials and the price index, increasing the frequency sooner, by month, by the provisions of the Construction Law and the Government's Decree 10 dated February 9, 2021.

The Ministry of Construction also proposed that the Prime Minister appoint the Ministry of Construction, the Ministry of Justice, the Ministry of Transport, the Ministry of Finance, and the Ministry of Planning and Investment to supervise and evaluate the implementation results of localities, promptly advise solutions to remove difficulties and problems and report to the Government, based on their assigned functions and tasks.

Furthermore, the Ministry of Construction proposed that the Government appoint the state agency competent to decide on investment to direct the project owner to report on the assessment of difficulties, problems, and causes (subjective, objective); clearly define the responsibilities of the parties and the legal basis for contract adjustment (including BOT contracts), and propose solutions to remove difficulties by proactively dealing with issues within their jurisdiction.

PV