SINGAPORE – With fuel prices up by more than 200 per cent in recent weeks, contractors working on both public and private sector projects will need Government help, said the Singapore Contractors Association Limited (SCAL).
SCAL president Lee Kay Chai told The Straits Times on April 8 that discussions with the Government have focused on requesting financial support for both types of projects, rather than only critical public projects.
Fuel-related costs typically make up about 15 to 25 per cent of total construction costs, and sometimes more, depending on the project type, he said.
He called the cost pressures “unprecedented”, adding that construction contracts are typically based on lump-sum tendering, “with contractors making assumptions based on normal inflation or modest price increases”.
“This sudden spike of over 200 per cent for fuel is well beyond what any contract could reasonably anticipate. Many in the industry feel broader coverage is needed to fully mitigate the impact,” Mr Lee said.
On April 7, Senior Minister of State for Finance Jeffrey Siow said in Parliament that Singaporeans have already felt some effects of war in the Middle East, citing the sharp rise in petrol and diesel prices, in tandem with global oil prices.
Consequently, he announced that the Government would share cost increases directly related to fuel costs with contractors.
It will bear half the additional cost incurred by contractors arising from the use of diesel and bitumen for key public projects, such as the Cross Island Line and public housing projects.
Giving more details in an April 7 circular, the Building and Construction Authority (BCA) the move will cover contractors that carry out four types of construction activities – earthworks, foundation or piling works, roadworks and reclamation.
The agency said these activities are among the most severely hit by the price spikes due to their heavy reliance on diesel-powered machinery, vehicles and vessels.
The costs would have to be incurred between from March 1 to May 31, 2026 – the three months following the start of the conflict on Feb 28.
Mr Von Lee, founder and chairman of Expand Construction, said the cost of diesel has risen from about $1 per litre before the war to around $3 per litre now – a rate lower than what consumers pay at the pump as construction firms purchase in bulk.
Even so, he said that if diesel prices remain elevated, construction firms could become unprofitable.
Giving an example of a construction project worth about $200 million, Expand Construction’s Mr Lee said profit margins for a project could be about 3 to 5 per cent, which would work out to about $6 million on the lower end.
During the earthwork and piling phase of the project, he said, about 50,000 litres of diesel would be required every month. Under current diesel prices, this would mean contractors have to fork out $100,000 more per month than they usually would.
This means that over a year, $1.2 million – or about 20 per cent of a project’s profits – could go towards inflated diesel costs.
Mr Lee, whose company has ongoing public housing and infrastructure projects, said that the measures announced on April 7 will help ease cash flow issues that contractors are facing, and also give main contractors more clarity in their price negotiations with subcontractors and suppliers.
He added that the war’s most pronounced impact thus far has been on activities involving diesel usage, as suppliers have priced diesel cost increases into transportation fees for construction materials.
SCAL’s Mr Lee said that prices of bitumen – which is essential in roadworks – have increased by about 80 per cent from rates before the war started, while the cost of other raw materials has risen by between 5 and 20 per cent.
“SCAL is working closely with Government agencies to explore expanding cost-sharing support for additional costs resulting from diesel price increases to help the sector,” he said.
He added that the industry is also seeking more clarity on the mechanics of the cost sharing initiative that was announced on April 7, and on issues such as project eligibility and scope of claims.
“More explicit guidance would help contractors understand how to access available support efficiently,” he said, adding that the association anticipates that the industry may require more support beyond the cost sharing measure’s current three-month window.
Responding to queries from ST about the potential of additional support, a BCA spokeswoman said the Government will continue to monitor the situation and assess if support needs to be extended beyond May 31, and whether additional support is needed for other types of construction works.
She said firms can take steps to build resilience against future market volatilities and supply chain disruptions, such as by using alternative materials and energy-efficient construction equipment including EV trucks, electric excavators, crawler cranes, and wheel loaders.
SCAL president Mr Lee also echoed National Development Minister Chee Hong Tat’s call for private sector developers to share diesel and bitumen cost increases with contractors.
Asked about this, a spokesperson for the Real Estate Developers’ Association of Singapore said there is “no one-size-fits-all approach for private sector projects”.
“Project costs and risk allocations are typically agreed upfront under contract, and broad-based cost-sharing may not always be feasible,” the spokesperson said, adding that the association “encourages developers to engage their contractors constructively where practical solutions may be needed”.
A spokeswoman from property developer Hong Leong Asia said it is “working closely” with the Housing Board and contractors on the Government’s relief measures.
“However, conditions remain challenging, and cost pressures are likely to continue across the value chain without a more sustainable resolution to the energy situation,” she added.
The Straits Times has also contacted seven other private developers – CapitaLand Development, City Developments, Frasers Property, GuocoLand, Qingjian Realty, Wing Tai Holdings and the UOL Group – for comment.
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Additional reporting by Grace Leong