Reasonable contract conditions

KUCHING: Construction costs for certain projects in Sarawak have risen by 30 to 40 per cent, prompting calls for realistic project estimates, fair procurement practices and price-adjustment mechanisms to safeguard contractors’ financial viability.

Sarawak Master Builders Federation (SMBF) president James Ha said the increases were mainly attributed to higher material prices and diesel subsidy rationalisation, although they did not reflect a uniform industry-wide trend.

He said an SMBF project costing exercise also found that labour costs had increased by about 20 per cent between 2023 and 2026, driven by wage adjustments, statutory contributions, working-hour requirements and foreign worker compliance costs.

“Contractors without adequate margin buffers may struggle to bid competitively without taking on unsustainable risks,” he told Sarawak Tribune.

Against this backdrop, Ha said Sarawak’s RM10.098 billion development allocation under Budget 2027, representing a nine per cent increase over the original 2026 estimate, must be accompanied by realistic cost estimates and fair contractual arrangements.

He called for the reinstatement of an appropriate Variation of Price (VOP) mechanism for eligible contracts, particularly those affected by fluctuations in bitumen, industrial diesel and other construction material prices.

Ha also proposed price-adjustment provisions for long-duration contracts, Extensions of Time (EOT) where justified, and a review of the Subsidised Diesel Control System (SKDS) for construction activities in remote areas.

He said timely progress payments, proportionate performance security requirements and fair retention provisions were equally important, particularly for smaller contractors.

On development opportunities, Ha said greater clarity was needed on how much of the RM10.098 billion allocation would translate into new tenders rather than payments for ongoing projects.

“The key information gap remains the absence of a disaggregated project list specifying which allocations fund new contracts versus progress payments on existing works,” he said.

He identified RM742 million for roads and bridges, RM454 million for water supply facilities, RM350 million for Rural Transformation Projects and RM253 million for Special Project Programme as allocations that could benefit local contractors.

However, he said smaller firms could face financing and procurement constraints in major infrastructure programmes, including the RM2.27 billion Alternative Funding allocation and RM988 million for the Kuching Urban Transportation System (KUTS).

Ha urged the government to clarify financing arrangements, contract packages and eligibility requirements, including opportunities for local firms to participate as main contractors or subcontractors.

He also proposed quarterly tender schedules from implementing agencies, including Public Works Department (PWD), Department of Irrigation and Drainage (DID), Sarawak Metro and regional development agencies.

The schedules should specify project scopes, estimated contract values, procurement methods and expected tender advertisement dates to help contractors plan their manpower, equipment and financing requirements.

Ha said Sarawak’s existing e-Procurement portal should serve as the main platform for publishing the information.

He added that stronger coordination among implementing agencies, transparent procurement and predictable approval timelines would help translate development allocations into financially sustainable projects while strengthening local industry participation.