How Construction Businesses Can Seize New Opportunities in the COVID-19 World
Construction firms received several blows in 2020, especially at the start of the pandemic. It started with the social restrictions that put many projects on hold and ended in decreasing the nation’s infrastructure budget. However, this is not the end for the construction sector, as it is a momentum to rise even stronger, moreover in 2021 or the post-pandemic era.
Dr. Siddik Siregar (Former Director of WIKA Beton) uncovered a differentiation strategy that can be applied by construction businesses to reap maximum profits amidst the pandemic. Dr. Siddik Siregar, who is also an alumnus of the Doctor of Research in Management at BINUS Business School, was invited to be the keynote speaker in a webinar series called “Connecting the Dots” held by BINUS Business School and the BINUS Graduate Program on Friday, March 19, 2021. Here is the complete review.
The EPC contract (Engineering, Procurement, and Construction) which is usually carried out on a large-scale project or an exclusive project can be a differentiation strategy for construction companies amidst the pandemic. Not all construction companies can provide the services needed for this somewhat complex EPC contract. Therefore, to receive as much profit as possible, construction companies can provide construction services that include planning, procurement of goods and services, and construction stages.
Nevertheless, it should be noted that the EPC contract does provide flexibility to the project owners by delegating all the risks to the contractors. So, make sure that the value of this EPC contract has taken all the efforts, time, costs, and labor into account.
Most commonly, the value of an EPC contract is far greater than other project contracts in general. That’s why construction companies should not be wary of maintaining the value of the EPC contract to maximize the profit return.
A turnkey project is basically a pay later project, where the owner delegates all project obligations to the contractor and will pay in full after the project is completed or has been handed over. Usually, this turnkey project is proposed if the owner or developer does not have a sufficient budget to immediately start the project. Rather than waiting until the budget is 100% ready, a turnkey project is carried out.
For owners and developers, it is very difficult to find a construction business willing to accept turnkey projects, especially in the midst of this pandemic. This is an opening for a construction business to take advantage. In fact, there are a lot of development projects available but are on hold due to insufficient budgets.
Turnkey projects can be a solution for both owners and contractors. Moreover, Siddik revealed how a contractor from China offered a turnkey project where the owner could pay in full 2 years after the project was completed. Surely this can be an example for all contractors in Indonesia.
The turnkey project value is usually higher than projects with a term payment system, so the profits will be even greater. However, before accepting a turnkey project, one must take a look at the financial conditions of the owner and partners (suppliers, sub-contractors, etc.)
Siddik argued that the years 2020 and 2021, which triggered the Indonesian Investment Authority or Sovereign Wealth Fund (SWF), could be used to complete the company’s investments. SWF is an alternative financing solution for big projects that also includes national-scale infrastructure, as well as provides certainty for foreign investors to invest in Indonesia.
What kinds of results are we expecting? SWF can be a long-term financing solution that increases the shares of companies engaged in the construction industry. This is a source of new investments, where the money will come from foreign investments, either from establishing new investments or joining existing investments so as not to increase debt.
Siddik revealed that no investment realization had occurred as of March 19, 2021, but it should be noted that many foreign investors had joined and engaged in direct discussions regarding their targeted projects. The projects in question include the construction of toll roads, ports, oil and gas, power plants, et cetera.
Expanding businesses overseas
Finally, Siddik shared his insights regarding the expansion of the construction sector outside of Indonesia. In the era of the pandemic, firms are more focused on survival. However, at the very end, many construction businesses have abandoned the option of providing construction services overseas.
This option is risky, especially if done without thorough planning. However, it can be a good solution that can be continued into the post-pandemic era, like how WIKA has reaped benefits from working on overseas projects in Taiwan, the Philippines, and Congo.