Koon Yew Yin's Blog
Bumiputera contractors: A wasteful national mission - Koon Yew Yin
Koon Yew Yin
Publish date: Tue, 14 Apr 2015, 10:12 AM
Koon Yew Yin
0 1,428
An official blog in i3investor to publish sharing by Mr. Koon Yew Yin.
All materials published here are prepared by Mr. Koon Yew Yin
All materials published here are prepared by Mr. Koon Yew Yin
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It is an indictment of our system that IJM is able to compete internationally for contracts but yet is required to work as a sub-contractor to Bumiputera companies on the North-South Highway in Malaysia. On Oct 25, 2009 our Second Finance Minister Ahmad Husni Mohamad Hanadzlah said that government has vowed to cut down on wasteful spending to lower its budget deficit and all major public projects must go through the open tender system. Earlier, the Auditor-General’s report for 2008 revealed continuing financial management weaknesses at every level of the government. Delays in project completion seem to be a perennial problem and the lack of oversight by various ministries and departments in the procurement of goods and services continue to cost the government hundreds of millions of ringgit. These statements indicate perhaps that our Prime Minister Najib Razak may want to reverse his announcement on January 9 in Kuala Teregganu that the government would always look after Class F contractors. (Non- Bumiputeras cannot register as a Class F contractor). The government had in fact already set aside RM900 million, which was RM300 million more than last year, for works to be undertaken by Class F contractors this year. Producing competitive Bumiputera contractors As reported on May 1, 2005, Malaysia had one contractor for every 614 persons. Most likely there are more contractors by now. This ratio is again likely to be amongst the highest in the world and is obviously costing the public a significant amount of money besides affecting our overall economic performance. I would like to pose a few questions which may appear unkind or insensitive but nonetheless need to be asked. Out of hundreds of high-rise buildings in Kuala Lumpur does anyone know of any Bumiputera contractor who has won any of the building contracts through an open competitive tender process? Out of hundreds of kilometers of highway in Malaysia, can any Bumiputera contractor who won any part of the highway contracts through open tender be identified? The answer to the above questions unfortunately is in the negative. The evidence is that all the government’s well-intentioned efforts in trying to produce competitive Bumiputera contractors since 1957 have failed. Why this has happened needs to be openly discussed rather than swept under the carpet. In this note, I share my experiences as a contractor and my knowledge of why Bumiputera contractors have failed in the past and what needs to be done by the government to correct this unhealthy situation. Facts of life in the contracting business Contracting is a very difficult business yet it is so easy to register as a contractor. To register as a Class F contractor one has only to show that he has RM5,000. He does not even require a pass in Lower Certificate of Education (LCE). But it will take at least 10 years to learn how to overcome all the inherent difficulties and become competitive and efficient. Continuously giving out lucrative and over-priced contracts without open tenders will only make the recipients less competitive. Secondly, studies have shown that there are more failures and bankruptcies in contracting than in any other business, and also almost all construction projects are NOT completed within the original scheduled time. The delay will cost the contractor more and that is why you can often see uncompleted buildings and abandoned projects which have been undertaken by inefficient contractors. There are many reasons for this peculiar phenomenon. 1. Open tender system Although this system is the best way to ensure completion of any project/contract at the lowest price, it is the most difficult obstacle any contractor has to face in the real competitive world. He must know his business very well and be efficient to face the open competition all the time. Like a good athlete, he has to keep fit and constantly be aware of the market conditions and his competitors. There is a classic saying, ‘a cheap thing is not good and a good thing is not cheap’. But contractors 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 to get the cheapest rates. He must assume that he will not encounter any cash flow difficulties and that he will always get his progress payments on time to pay his creditors. He must also assume that he will not encounter any difficulty in getting all the required materials on time to avoid any delay and also that there are ample workers for him to pick and choose from. Furthermore, he must also assume that the heavens will be kind to him and he will not meet any inclement weather during construction. Invariably, many of these assumptions are proven wrong and thus completion delayed, and the infrastructure will cost more to complete than provided for in the contract. 2. 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, talent or abilities. It is going to be determined by his ability to develop a great team. Those who are closest to him 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, bearing in mind that the main contractor’s survival depends on their contribution. Their main goal must be saving cost. If they cannot complete the contract within the tender price, all of them will also be affected. 3. 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), eventually allowed only 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. At the same time, knowing that they have to undercut their competitors during the tender process, contractors would normally under-price to achieve the lowest tender. Invariably, most materials would increase in price due to inflation and other reasons. Contractors require many years of experience to be able to anticipate such price changes and to make adequate provisions for them whilst at the same time not overpricing their tenders and losing the bid. 4. No contract is exactly the same No two high-rise buildings in KL are the same. Construction of a building, a bridge or a stadium is always akin to making a prototype. The process is much more difficult than manufacturing any product where there is repetition. For example in making cars, the first prototype and the initial few cars may be more difficult to make but once everyone gets used to the routine, the manufacturing process will normally proceed smoothly. However, in the construction of buildings or any civil engineering works, there is very little repetitive work. Every construction site is different and most of the people involved have never worked together before. 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. 5. Financing Most contractors do not have sufficient capital to finance their undertakings. Contractors generally do not have fixed assets like most manufacturers. They usually do not have land and buildings but, instead, they have construction equipment. Unfortunately, banks do not accept these moving assets as collateral for a loan. Without bank financing, contractors will obviously find it more difficult to undertake their business. Beginning at the bottom: The 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 to be. There are other factors explaining why or how some of the most successful tycoons associated with the building or construction industry have managed to get where they are. Firstly, it should be noted that the majority of listed companies were started by Chinese merchants most of whom incidentally did not have tertiary education. 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 contractor. Generally, Bumiputeras are not interested in working long hours in managing small businesses earning marginal profit. Because of the NEP, many have hopes of securing permits or concessions for big deals so that they can become instant millionaires. There are relatively few Bumiputeras involved in small and medium-scale enterprises (SMEs). More Bumiputeras should follow the humble footsteps of the Chinese to become traders and merchants for building materials and similar goods. The business skill they can learn from these humble beginnings will carry them a long way. I am very sure some of them will eventually become good contractors and successful businessmen if they learn the trade at the bottom and not try to parachute into the contracting business. The importance of skilled workers Although there are already many Bumiputera engineers unable to find employment, most of the universities are still producing more and more engineers every year. But without a sufficiently skilled workforce, all the engineers in the world would not be able to complete a single project. There are so few Bumiputera construction foremen, carpenters and other skilled workers. If you were to go into any building 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. In fact, most of the Chinese contractors started as apprentices and rose from the bottom to become successful contractors. More Bumiputeras should be encouraged to work as apprentices in construction sites. This is a necessary good practice to produce really good Bumiputera contractors. The role of trade schools There should be more trade schools and more Bumiputeras should be encouraged to learn construction skills like carpentry, welding, plumbing, bricklaying, etc. Very soon, skilled tradesmen will be able to earn more than degree holders as is the case in Australia or England. The government should build more trade schools and not hesitate to offer scholarships to Bumiputeras to be trained in these trade schools. Presently, the construction industry is not short of engineers but it is very short of skilled workers and supervisors. If more Bumiputeras are properly trained in various crafts and blue collar skills, some of them will go on to become good contractors. Time and more time They say Rome was not built in a day. It is easier to produce engineers, doctors and other professionals than to produce efficient and competitive contractors who do not need government financial aid. Just giving out lucrative contracts to Bumiputeras is not the answer; in fact it is counter-productive as it simply makes them more inefficient and less competitive. IJM Corporation Bhd has taken more than 40 years to attain a competitive level of competence. The record shows that IJM has secured on competitive tenders five toll road concessions in India. Three are currently in operation and two are under construction. The total length of the roads exceeds 1,000 kilometres, longer than our North-South Highway. In addition, IJM completed a toll bridge in Kolkata and sold its interest for RM65 million profit after a short period of three years. IJM is also a very reputable LRT builder, having to date completed 15km of the elevated sections of the New Delhi Metro and it was recently awarded another 8km. Based on open competitive tender, IJM won the contract to build the tallest building, a prominent future landmark for the Delhi Municipality, in New Delhi. It is an indictment of our system that IJM is able to compete internationally for contracts but yet is required to work as a sub-contractor to Bumiputera companies on the North-South Highway in our own country. Conclusion: Half-baked contractors are not in our national interest Contracting is one of the most, if not the most, difficult business and it takes a very long time to produce competent contractors.
It is very dangerous to quickly produce half-baked ones as they will soon find themselves in financial difficulties and require bailouts. The bankruptcy record shows that a large number of debtors are Bumiputera contractors with many of them unable to pay back the loans given by government-controlled financial institutions. 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. Giving out contracts without a full tender process is akin to corruption. I urge the government to stop this corrupt practice and to utilize the savings from these enormous sums to implement the options suggested above. Note on the Author I am a 76-year-old chartered civil engineer and one of the founders of the three larger construction companies listed in Bursa Malaysia. These are Gamuda Bhd, Mudajaya Group Bhd, and IJM Corporation Bhd. I was a member of the Board of Engineers, Malaysia for three terms. I was also on the Sirim Board responsible in writing the Malaysian standard specifications for cement and concrete. In addition, I was the Secretary General of Master Builders Association, Malaysia for nine years. These days, I am completely retired. My intention in writing this article is honourable. Many people may not like reading what I have written and the truth may be difficult to accept. Nevertheless, this is my considered analysis for the benefit of my country, the Bumiputera contractors and the construction industry. |
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Discussions
5 people like this. Showing 50 of 57 comments
@fortunebullz and @alphajack
why are two intelligent people like yourselves acting like "ostrich with head in sand"? i hear words like insensitive,superiority complex thrown at Mr Koon. Do both of you know what is going on beyond your little world? the spirit of muhibah does not mean we turn a blind-eye to prevailing occurrences, leakages & incompetencies in the system. If we have the guts to admit our weakness (like LKY) and try to change, we can develop so much further instead of trying to shut everyone up by saying it's too "sensitive" to talk about and continue on like biasa-lah. What Mr Koon write about is not fantasy, that's why the growth of this country is like a snail compared to our neighbours.
I give u an example - many years ago,a friend of mine went for an interview for remisier positon. now i dont know but that time they very strict with the quota. management told him that he can join but only if he can bring in a bumi remisier (to balance the quota). haha my friend have to turn into recruiter. Do u think that is in the spirit of muhibbah for a multiracial country? But what to do, my friend want to join. The best thing is remisier get commission based pay, but for the bumi he bring in, get fixed salary+commission and only need to "lend the name" so quota is OK, no need to go office. even then hard to find people to take 2 dealer rep exam and get free money. that is just one small example. Equality, spirit of muhibah? Got lah, PR campaign for our country's international image but at many levels of society/business/government, i think is dead a long time ago already.
p-s and please dont talk about poisoning the minds of the local chinese youths like you assume they are too stupid to think for themselves. All they have to do is open their eyes or experience for themselves, then they will know.
2015-04-17 17:11
Fully baked contractors are in our national interest.
Fully baked contractors provide quality, speedy, cost effective products and services that make customers happy.
Fully baked contractors creates employment, earn foreign exchange and enhances the country's image in the eyes of the world.
Time to switch focus to nurturing, promoting growth of MORE FULLY BAKED CONTRACTORS.
2015-04-18 09:14
ruslimz. the new gen chinese and indian Malaysian donno, and dontcare abt 13 mei.
infact, they are more combative than the last gen.
this scare tactic from mamaktir dont work anymore.
dont u see govt is trying to suppress big gathering.
dont believe u do a survey. and find out who scare? only those above 55 yrs old bcos they been brainwash.
now the major conflict of interest happening in only 1 race. they fight amongst themselves. i dont have to tell u which race la, u just need to read headlines everyday from global media.
2015-04-18 09:39
it used to be race based 50 yrs ago. now its power based and money based.
race was being used to stir up emotion.
tell me 50yrs ago bolehland got expat community or not? got orang putih working and staying here or not? got bangla and vietnam burma ppls or not.
if the Mei incident happen again.
tell me what happen to the 7 millions foreign ppls will do? most of them more garang and come from war/depressed country and they have nothing to lose but everything to gain.
i think they wil b the winner.
fast fwd from 50yrs ago to now.
u go see which race own the hyper mkt, petrol stnt, bank, hotels, bla bla.
who has more to loss.
different now my friend. your grandmother has to sheet in jungle and afraid of snake.
new gen never even seen a snake before. they sheet in aircon fully auto toilet and even clean their ass.
dont always use grandmother story to scare ppls la.
2015-04-18 09:45
Mr Koon, perhaps you don't know about Institut Kemahiran Belia Negara; IKBN.
IKBN has been set up for more than a century already. Every state has one IKBN. The main purpose is to provide training and turn belia into skilled workers.
Times have changed and no companies especially private wants to take in apprentices anymore.
IKBN has helped many youths. Check it out. I am writing just to correct any mis perceptions, to help out. That's all. Correct me if I am wrong.
2015-04-18 09:55
Please read his article carefully. Do go off tangent. Mr Koon did not debase any race here. He only gave suggestions on how and what the government should do to produce good and capable bumi contractors base on his wide knowledge and experience in the building contractor business.
2015-04-18 16:17
This article must be six years old judging by his claim of being a 76 year old chartered civil engineer. It's just another re-cycled piece.
2015-04-19 09:58
For crying out loud ... We are here in this forum to invest and money a quick dollar. Keep keep racial issue aside. Leave the racial issue to politians to lure voters. Don't forget our blood types don't tell the different race !!!
2015-04-19 15:16
J T I fully agreed with you.Mr Koon if you are so unhappy being in Malaysia. Pls leave the country.Thank you for not being so insensitive.Please stop making statements creating disharmony among Malaysians.
2015-04-19 15:25
I believe any citizen in any country has the birth right to voice out any unhappiness without being ask to leave. That is the farking reason why u have election. Fool.
2015-04-19 15:38
But Mr kyy abuse this forum of investment n turn it political. He is abusive.
2015-04-19 15:39
haha some people saying "If you don't like it, you can go back to china/india/etc". So simple minded these people. Please lah, this is standard racist/bully response when they hear something they don't like. You mean Mr Koon cannot hope for a better Malaysia? And if they were not so blind, they would see that Mr Koon raise up a SYSTEMATIC issue, more than a race issue. The SYSTEM as it is now, is totally inefficient. as for IKBN, hehehe....less said the better. Words like equality, tolerance, moderation is very good to show to the angmoh & the international community but the reality is very different.
@lohman by your logic, just because it's recycled it's written by a six year old? so, everything you say is original and never been said before in this life, is it? you see how silly you sound. If you're going to accuse someone like that back it up with some points instead. a five year old can do better than you.
@Tornado blood and sweat is for 'normal' folks. this is malaysia so some people can sit on their ass and get contract and easy money.
2015-04-19 16:24
i like critical thinking.
Posted by ccdev > Apr 19, 2015 04:24 PM | Report Abuse
haha some people saying "If you don't like it, you can go back to china/india/etc". So simple minded these people. Please lah, this is standard racist/bully response when they hear something they don't like. You mean Mr Koon cannot hope for a better Malaysia? And if they were not so blind, they would see that Mr Koon raise up a SYSTEMATIC issue, more than a race issue. The SYSTEM as it is now, is totally inefficient. as for IKBN, hehehe....less said the better. Words like equality, tolerance, moderation is very good to show to the angmoh & the international community but the reality is very different.
@lohman by your logic, just because it's recycled it's written by a six year old? so, everything you say is original and never been said before in this life, is it? you see how silly you sound. If you're going to accuse someone like that back it up with some points instead. a five year old can do better than you.
@Tornado blood and sweat is for 'normal' folks. this is malaysia so some people can sit on their ass and get contract and easy money.
2015-04-19 16:27
i donna who are more insensitive?
this country is not owned by any race. check the constitution if u r free.
the NEP is to help the weak to survive. it is not meant to give them monopolistic power in most sector and lucrative deals.
Posted by malaysian > Apr 19, 2015 03:25 PM | Report Abuse
J T I fully agreed with you.Mr Koon if you are so unhappy being in Malaysia. Pls leave the country.Thank you for not being so insensitive.Please stop making statements creating disharmony among Malaysians.
2015-04-19 16:28
ccdev,pls use the right forum to voice your frustration, u n koon pls go join mca or pakatan,or wait till election to cast your vote.this is an investor forum,not a political forum for you two.u are abusing I3investor .
2015-04-19 16:29
Tell me frankly mr koon how many bumiputera politicians or government servants have you given bribes? For the real bumiputera muslim taking or giving bribes is a no no! Maybe that's why they are not successful.
2015-04-19 16:32
Modified salt n pepa song
Chorus
Let's talk about shares, baby
Let's talk about shares and me
Let's talk about all the good things
Let's talk about shares
Let's talk about shares
Let's talk about shares
2015-04-19 16:40
@ccdev, I have withdrawn my comment on blood and sweat. I wrote that in response to someone claim about Mr.Koon fortune, since he has withdrawn his comment , I withdrew mine too.
2015-04-19 16:50
@ccdev :- You are being very polite to categorise a folk who carry a nickname " malaysian " as simple minded. I certainly hope this simple minded folk does not represent the general malaysian.
2015-04-19 17:03
Let me throw another stone at the hornet nest..Politic ,economics and social issues are inter related in fact a good school will teach them all in their syllabus. Your investment decision should likewise tainted with them whether u like it or not. We must promote and raise the living standard and diligence of the poor give them adequate resource so that at least there can hold their dignity up and not steal for a living. The Malays Should be empowered to succeed but not like what is happening now where all contract is skimmed off in the name of Bumi but goes to the filthy rich ammo cronies.When will the poor malay be able to succeed if all this raping of resources continues?
2015-04-19 17:21
@Tornado noted, appreciate the feedback. and i don't think Mr Koon's article was defamatory towards any race. it just paints a sad picture of current affairs.
2015-04-19 18:25
@malaysian I am not frustrated (edited, words were in bad taste), you check that i laughed (haha) before i started my comments. So I am merely voicing my opinion, i'm sorry if it makes you uncomfortable. If you don't agree with me, then please leave....You see how silly i sound, like a person who cannot have a proper dialog with others then they will say "if you dont like/agree with me etc then leave!" if only more malaysians like Mr Koon have the guts & brains to recognize our own weakness instead of always 'jaga muka', we won't be so far behind our Asian neighbours and complaining about our shitty currency and economic competency.
And mr Koon is talking about things that effects the economic growth of this country, and the corporations in this country. So yes, we are also talking about the stock market in general. Lcwin put it very nicely - everything is connected. some people just want to make it separate issue.
2015-04-19 19:26
@ccdev; By my logic, an article, recycled by an 82 year old man which mentions he was then 76 years old, must be 6 years old. Did you come out with the same numbers?
2015-04-20 15:07
People who are saying that this is a investor forum and not political one so kyy should'nt put his view here. Halo bro? Political will and agenda is one of the biggest market influences. You want to buy a contractor company share? Then you must understand how the business works.
All you people only know how to shout shout, got some fool bring up mei 13 some more. Please lah, don't spread your ignorance here.
Don't like then balik china/india/holland another stupid argument. I ask you if I come and dig a big hole in front of your house then tell you "if you don't like the hole then move lah" will you move house? idiots.
2015-04-22 10:15
Ya and i will bring my Bangladeshi, Pakistani, Middle eastern and also Negros to come along. And don't forget, it is time now for the Negros to take revenge on those ethnic kangkung.
2015-04-22 10:28
Thks for sharing yr invaluable insight, Mr Koon. I enjoy reading all yr blogs.
2015-05-05 11:46
As a minority and do not work hard the chance of survival is close to zero
Is it good to be a majority
2015-05-05 14:29
Well said Mr Koon. I always admire your logic and sensible arguments which are so very factual and real. You are doing our country a big favour by pointing out the mistakes made. Hopefully, there is a change of wind and may your dreams be fulfilled for this country to change for the better. Bravo to you, Mr Koon. Please keep up the good works you have been doing. I am for sure, am proud of you!
2015-05-05 17:51
Your feed and provide education to your children until they grow up and you invest a lot of time and money on then
But after the children grew up they do not appreciate your hardwork and even steal from you and kick you out from the house when you get old and poor to survive on your own.
How can they understand how bitter their parent feel after betrayed by their own children
2015-05-06 06:04
Bravo to Mr Koon for the honest article. Im sure many people will think that it is insensitive and hard to swallow the facts but if this reality is ignored, then the bumis will forever lose out. I can predict that 30 years from now, the politicians will still be shouting abt bumi protection and hand outs to help the community. Their policies are all short term and main purpose is just to satisfy the short sighted bumis to win votes. No one ever thinks abt how to develop competent, capable bumis for the future generations. End of the day, non bumis will get blamed again and again for smth which is not their fault.
2015-12-02 11:43
is a tough business doing contract works. unless you a big GLIC with a fat contract built in. otherwise any hiccups in the original plan you can be 100% assure of cost overruns.Sub contracting works (please dont ever dream of getting your payment on time ) you are the mercy of the little napoleons
2015-12-02 11:54
For those who find something wrong with every single thing in this country, why, there is nothing & nobody preventing them from removing themselves from the situation that they hate. As in, the migration solution.
2015-12-02 18:43
KYY an old man & being in this industry for most of his life certainly knows what he is talking about
2015-12-02 18:47
Well, if he can afford himself the luxury of time to indulge himself in writing whiny-moany blogs on I3 forum, then that means he hasn't done too badly in his contracting business. Enough to just be shaking legs & rambling away without a care in cyberspace.
2015-12-02 19:01
Mr Koon is too scared to come out now. He is hiding away, with his tail between his legs, in an old, worn out, cracked up belacan barrel in his great grandma's old bangsal.
2015-12-04 01:41
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2015-04-14 21:58