2021年6月20日 星期日

 

 Part 7-4: Working Overseas, Advanced Civil Engineering, (NTUST, 5908701)
台科大高等土木施工學教材(2021) 

MT KAO (Blog: http://mtkaoforum31.blogspot.tw/)

(mtkaoforum31@gmail.com) 

 

9) Unmanageable Risks: 

(1) Politic risks (regime change, war, commotion, nationalization, sanctions, embargo)

When people go to foreign countries for construction or engineering works, they've to assume that the host country will be socially, economic and political stable. Because when it tumbles, no company or individual will be able to bear the consequence. 

In general, government in the developed economies will provide insurance to cover part of the loss suffered financially by the companies working for projects in the troubled area. But the compensation can only cover part of monetary loss; freedom and lives of the people is losing forever if it involves violence or antagonism.

State function will be disturbed if war, riot or public disorder happen, they will cause the progress of the project hindered. Regime change though not violent may've brought in abrupt change of policies hurting market and economies. For contractors, efforts to call for the resources to complete the projects can be interrupted, contract payment suspended, permits and licenses withdrawn, currency devalued, the risk is not predictable, and  too big to manage. 

The idea of national insurance is not only that the government has to provide coverage for the contractors going to less developed economies, also they will evaluate the general situation of the places where the contractors will go in terms of politic, social and economic essentiality. The appraisal will reflect in the quotation of insurance premium; or in the other sense, reject to insure for any works in that country.

So, if the contractors feel he’s not secure after getting national insurance and obtain adequate compensation, he will not venture in that country. It’s a good system for contractors pursuing overseas construction works, and can be extended to the equipment and systems exportation business requiring less local content.

We saw a lot of political risk came true in the real world since late last century: petrochemical plants worth 10s of billion dollar in Basra owned by Mitsui of Japan destroyed as war broke out between Iraq and Iran 1980; invasion of Iraq to Kuwait in 1990 resulted in all the contractors including Taiwan’s BES Corporation evacuated; downfall of Suharto government 1998 leading to social unrest, realignment of industries, and broke of banks ; etc.       

(2) Exchange and currency risks 

It’s almost a legend that big corporation dealing with foreign currencies will have its daily balance convert into USD or home country currency without shortest time exposure to fluctuation.

The saying also supports the fact that exchange and currency risk is really difficult to manage. Because the risk stays not only for currencies in a weak economy but also exists between currencies of first world countries. For example, 2 years after Plaza Accord 1985, Japanese Yen appreciate by more than 50%, meaning Japanese contractor will receive 50% less for whatever the payment of the contract. Pure loss. 

A general contractor will mitigate the risk in several ways: 1. Request the payment made in currencies to be used during the execution. 2. If the contract stipulation can’t allow to pay the currencies in the type and amount of what he’ll have requested, buy the balance in the futures.

For international tenders, the evaluation may be as long as 6 months, during when, the currency may vary against each other for many percent; it’s really a dilemma for contractor: he’s stupid if he buys the fortune to cover the period and lost the tender; he may face loss if he doesn’t buy the fortune and get award of contract. 

(3) Economic risks (inflation, interference in manufacture and transportation system)

When people are doing business in their own country, they will make decisions depending on their own witness and past experience: in what extent regulation to abide can be predictable, their compatriot’s ability and work ethic, and finally the efficiency and reliability of the governmant. 

The contractors need to deliver the completed work in time, so they can’t put up with anything that will bring in the delay or default: interruption in manufacture or transportation, willful contravention of a major sub tier contract, and sudden collapse in market mechanism for work items, but all of them may happen in a strange country. 

Though due diligent investigation can and has to be done before the contractor actually steps into strange country, but the data can be deceiving and time is limited. So, the contractor needs to read the situation through features of history, culture and society in addition to figures obtained from engineering renaissance. 

It’s not to say what happened or not happened yesterday will occur or not tomorrow; but people have to be humble to learn there can be uncertainties that the individuals may not be able to manage even he's under umbrella of big company. 

A simple solution for foreign contractors will be that they won’t go to places where economic risk were recorded severe historically; but in practice people like to go to particular country where they think the room to administer the contingency is great , for example, foreign contractors always like to go to Indonesia and it seems they find ways to co-exist with risks like inflation and currency fluctuation.  

(4) Natural disasters (flood, typhoon, earthquakes, avalanches) 

Professional engineers always think they will make clear the occurrence, scale and devastating power of natural disasters with formal and scientific approaches. They certainly will get sufficient data and knowledge to address the problems and minimize the risk in their home country, but if they go for overseas, they will possibly become innocent student facing natural disasters entirely new to them.

For example, typhoon and earthquakes are new to many of the European engineers in design and construction, and they become entirely the freshman students coming to Taiwan. It’s funny and embarrassing if they insist that they shall steer to provide the solutions for the project just for the reason their companies are more eminent in contractual positions. But it's true they're doing so at tremendous expense of the company. 

Yes, the said disaster and the risks can be judged and solved by theoretical calculations; but it always requires ample time and local experiences to complete the perfect estimation works in an overseas project. Therefore, people have to admit that there shall be elements that they won’t be able to control at least to the extent that professionalism shall not be bent to commercial correctness.  

(5) Legal risks (change of law, unpredictable adjudication)

The laws and the regulation in a country is specific, that people can read it before they go there for execution of the projects undertaken. But the interpretation and rulings can be different everywhere. It’s so called “predictability”.

So, the international contractors have to be careful to check the applicable law, contract language, jurisprudence, place and mechanism for reconciliation during tendering.

However, the enforcement can be something else despite what ruling will be. In certain countries, the verdicts can be at best regarded as reference.

When the laws and regulation applicable for part or all of the contract change, the contractor as one of the signing parties may not be protected for cost and time arising out of the changes.

People shall be aware that not all the changes (of laws and regulation) will have neat numerical indication for claimant; and there will also be cost and schedule implication, for example, revising safety measures for workers will demand longer time to finish the works but hard to explain in the claim. And it always remains as the contractor’s legal risks in overseas works. 

Normally, international contractors will set up contractual conditions under which they’d rather decline the tender to protect the company. They call it “dealbreakers”, meaning nobody even it is company chairman can agree on the terms forcing them to bear the risks. 

(6) Cultural Risks, incoherent mental and behavioral model between host country people and foreign contractor. 

According to the story of the Tower of Babel, human race spoke a single language. At some time, they intended to build a city and a tower tall enough to reach heaven. God doesn’t like the idea and confounds their speech so that they can no longer understand each other, and scatters them around the world. 

More than difference in language custom and culture, people go to places they call foreign countries to build something would find the locals not so friendly as to render full collaboration. The expatriates complain the inhospitality, dishonesty, and irresponsibility often seen in local staff while resent for their ignorance, egoistic and discriminative behaviors.

The contacts are necessary between foreign contractor and their local employees, clients, sub tier contractors, vendors and authorities, and even with people surround daily life. There could be pleasant encounters but also frustrated ones, always at cost to the foreigners as they’re always imagining a coherent and amiable relationship will help them to deliver assigned works. 

Reciprocity shall be the only way to avoid the worst part of confrontational foreign and local relationship which, always leads to extravagant cost to complete the works. 

It’s not a matter of how much shall be provided for ties assumed might have been gone soured; more important, if a company or cohort of professionals want to go to different country for construction and engineering works, they’ve to respect what have been existed there and prepare to treat their counterparts equal.     

10) Manageable Risks (with care and monetary provision): 

(1)   Construction schedule and completion date.

The contractor have to assume that the Client and his representative will behave according to conditions and terms stipulated in the contract, or decline to tender; stringent it maybe, when the contractor fulfill his obligation and meet the exact formality required by contracts, they will pay. 

Completion date as ultimate project objective shall be observed by the signing parties and detailed schedule will be developed for the purpose of progress monitor and control. Time and duration specified for each activity and mile stone in the schedule manifest the contractor’s explicit commitment to the concerned parties that a reputable contractor will always try hard to keep with. 

But there will be disagreement by the parties over reasons and substantiation of time and cost required for extension, all these will be complicated and take time and tedious effort to settle. Usually the client and his representative will insist the claim be rejected for technical or procedural reasons while the contractors will maintain the cause of delay attributable to the client and money spent for mitigation shall be returned in full. 

There could be moments of impulse that the contractor felt the client or his representative might not pay him for the money to catch up the progress for delays not attributable to him. Maybe just out of fear that the client won’t honor the contract or impatient to wait until dispute settled, many of the contractors, especially the Asian ones, might resort to suspend the works expecting the client yielding to pay him for the outstanding amount. 

However, the brinkmanship approach replicated from the contractor’s often-used experience in their own country will be disastrous for overseas works as the bluff interpreted under different culture will probable turn every friend the contractor’s adversary.   

The risk for contractors to bear the enormous cost for catch up (as demanded by the client) or acceleration (as claimed by the contractor), can be real, but the orthodox way to manage it still is to trust the contract mechanism for time extension and dispute resolution. Of course, contingency provision shall be allocated if the contractors select to tender.

Because the disputes and problems always happen with regard to construction schedule and works completion date, so the modern day clients or lending agencies like banks will demand “Completion Guarantee” from the contractor especially for BT or BOT projects; the document is more important than the performance guarantees usually submitted by the contractors for late performance. 

It further confirms only the works is completed the investment will have been protected.

(2) In time delivery of construction material and equipment in quality and quantity, as well as certain service. 

The contractors have to make sure material and equipment required for the project will be delivered according to project schedule or he shall decline the tender. Foreign country is a different market, so he has to check the manufactureror vendors’ supply record, and pay serious attention to conceive an extreme situation under which he is still in effective control.

Local partner will be crucial, first to furnish information regarding material and service forayed locally, and then expedite. There will be delays, of which, the types and reasons will confuse people other than natives in addition to simple price hikes. The provision to mitigate must be spared in the tender though risks with regards to simple local procurement seems like to be manageable. 

There will also be material, equipment and service imported from third country, many of the items will be produced and delivered from developed economies. It’s not for granted that production and delivery from western countries will have no problem. 

On the contrary, the supply chain prevailing in developed economies is complicated, and many episodes may influence the delivery: strike, sabotage, minimum order requirements, multiple manufacturers, soft or hardware breakdown, weather conditions, etc. Also, the vendor or sub tier contractor may insist “reasonable” terms in their contract thus delivery schedule more vulnerable.  

(3) Contractual risks

As mentioned above, the contractor has to assume the Client and his representative will execute the contract based on rationality and faith, or he doesn’t agree to work for the project. He may have chance to do due diligence for the country to go, the project to undertake and the client to work for shortly before reaching concrete contract with the Client. 

However, a construction contract involves many work items and its successful performance depends on benign interactivity with society and authority in addition to the Client. A good contract will provide guidance and information for what to do and what to abide by for the parties; but it will be minimal. And it means most part related to actual execution will only be known sometime after contract signing. 

An experienced contractor will be able to judge how risky the contract terms mean to him in the tender stage through reading carefully the contract draft and find ways safely to averse the risks during execution.

But in foreign land and dominated by unfamiliar legal practice, even the most adaptable contractors have to allocate monetary provision for any contractual information provided, clarification made to him, or clues for events he’d have collected won’t be favorable to him.     

(4) Safety and security of expatriates (persons, property, accidents). 

In general, countries open gates for foreign contractors working in their territory for whatever the work, the governments will welcome and protect the expatriates and their spouse. 

But the actual situation is more complicated than official announcement and bookish regulations. Whether or not the expatriates will feel safe and secure will depend on if there is a friendly private sector, and enduring social conditions in the countries to support the foreigner’s free activities in both work and living.

Politic can be also the subject when assignment for positions in foreign country is sensitive, sometimes the nationality of expatriate can be problem to invite more trouble, though people are talking about unrestricted person flow under big name of globalization. 

Religion plays big part for whether or not a heresy be allowed to come to the same land; there may be radicals causing trouble for expatriates despite officially there won't be any  discrimination. The disturbance can be ranged from making menace on life or drawing lines for places the foreigner can’t cross or restrain their what they can do. 

Public order can also be a problem in a country that everybody’s money and life are threatened, and for foreigners, they can be more prominent for burglar, robbery or even murder. 

There can be places and moments that the expatriates shall be attended by body guards, translators and drivers for wherever they go and whatever they do. It’s still possible that the contractors for commercial reasons will go to places where religion fervor, revolution zeal or social commotion are underway. The cost has to be added as minimal management provision. 

(5) Free flow of capital. 

There’re many countries in the world will control sharply the flow of money; they need hard currency and are meticulous to spend it. It happens they’re also the countries who need foreigners to do projects big in size, sophisticated in nature for them. 

Normally, the Client of such kind of project will describe in the tender exchange rate for foreign currency, contract amount to be paid in foreign currency, and most important, definition of working capital, their conversion and remission. 

By prudent calculation, the risks can be minimized, and can even be deminished if  hard currency required will be closed to 100 %, but doing so, tender price will be evaluated high and the contractor will never win the tender. 

If the contract is BOT or PFI, the revenue for the projects may come from toll paid in local currency over many years and thus complicated the matter. For foreign contractors, the return and investment of the projects need to be made in hard currency, particular proposal shall be submitted to address the situation knowing that the capital flow may not be free in certain economies.

2021年6月7日 星期一

 Part 7-3: Working Overseas, Advanced Civil Engineering, (NTUST, 5908701)
台科大高等土木施工學教材(2021) 

MT KAO (Blog: http://mtkaoforum31.blogspot.tw/)

(mtkaoforum31@gmail.com)  


7) License, Registration, Special Permit for Foreign Contractor

In many countries, the locals and the foreigners are not offered equal right in conduct business, owning property, or exercising civil rights. People from countries considered liberal enough sometimes are astonished at the restraint imposed on the foreigners at the places they go for works. But it’s normal there’re reasons out of custom, religion and history to justify the differentiation with foreign people or companies, who need to learn everything beforehand for what they can and what they can’t do according to the laws.

(1) For ownership on land, housing and factory:

Many countries don’t permit or only allow conditional and partial ownership for holding land, house or factory for foreigners. The reasons to deny or restrain is that the government and the people are still in fresh memory that the huge capital imported will overwhelm the locals and thus a new form of exploitation; And in certain area it will be labeled like come-back of the colonialism. Politically it will not be accepted.  

In certain nations, not only the foreigners won’t be granted for any property titles, also not all the citizens are treated equal. For example, that in Malaysia and Indonesia, natives identified as “Bumiputra” will have full right for property titles while those their ancestors emigrated over hundred years won’t have the same rights. 


For example, according to the law governing land holding in Indonesia, the Agrarian Law, title to land may be divided in two categories: Primary and Secondary

The category “Primary” further divided in 4: “freehold, does not have a validity period”; the right for construction, valid for 30 years plus 20 years of the extended period with additional 30 years renewal period”; “the right for farming, is granted for the period of 25 or 35 years and may be extended for another 25 years”; “the right of use, granted for the period up to 25 years and may be extended for another 20 years”. 

And the category “Leasehold”, grant tenant right to construct and/or use buildings on the land owned by the primary ownership right holder during some fixed period of time. So, the foreign private persons and foreign legal entities, will use this to obtain the land for use of business purpose.


Normally, a foreign construction company signing the construction related contract with his Indonesian client needs to go through many local partners and sub-tier assistant for performance. For example, if he wants to set up inventories, fabrication shops, secure quarry and borrow sites, or build camp and office for staff, he need land and permit to run the minimum processing plants. And it has to be obtained by his local collaborators; with whom he must be establish trust and confidence; effort and expense that can be easily overlooked at tender stage.

(2) For business operation to sign the contract

The types of legal entities, for example, in Indonesia also divide into foreign-owned limited liability company PMA, local company (PT), representative office (RO). When a foreign entity wants to conduct the construction related business in the country, he needs to check the law whether it would grant PMA or RO to perform the works.

Technically, a foreigner is not permitted to have ownership of a local company (PT) in Indonesia, which should be only owned by Indonesian nationals. And the point is most of the public works will be tendered among PT. There may be remaining few for PMA and RO, but also require the joint operation between the foreign and local entities to safeguard the national’s interest. 

Because for PMA, the capital shall be sizable enough that the international contractors have to keep enormous money in a place where the chance for tendering may be rare. So, in practice, the foreign companies will have to select to open branch offices in Indonesia to qualify themselves for tenders open to foreigners, it’s so called RO operation. Compared to PMA, of which the liability is limited to the capital registered and paid up in local, RO operation means the mother company will sign and theoretically the debtors and claimers will be able to sue up to the home country. In the cases that the foreign companies need to joint operation with the locals, it seems risky for Representative Office to sign, and become guaranters of the local.

But unlike public procurement, the law doesn’t specify that the private companies are not allowed to sign with PMA or RO for construction or engineering works. For now, that BOT or BT are more popular than before and the ability to accomplish the critical works in an infrastructure project by renown foreign companies are widely recognized by stakeholders. The foreign companies may have more opportunity to assert themselves in the future.

Similar to Indonesia, many developing countries have the same ideas to protect native firms and guarantee the of the locals for employment. The requirement will be translated into the law and regulation that the foreign companies shall respect and understand.    

(3) To import the machine, permanent equipment and material

Countries are different in their pace, requirement and conditions to develop the economics. Sometimes, they pay whole attention to groom certain industries open the opportunity for foreign investment, and the other times they may design a negative list for outsiders as they deem the native production are worth for protection. 

Import permit and tariff rates are often used to fend off foreign competition. Additional review or cumbersome procedure may be imposed to procrastinate the import process if bureaucrat and business find custom duty alone may not be sufficient to guarantee the sales of the local products.

The local products will not be limited to material or manufactures; the equipment and facilities to be incorporated into the permanent works will also be the subject. The construction equipment and plants despite its temporary usage nature are also hindered in the process of construction mechanization because the labor employment need to be ensured .

However, the host country needs the loans for projects development more than their intention to nurture the relevant industries; they may go for the agreement with the giver international organizations or foreign governments in specified projects earmarking permits to import definite products, equipment and facilities as conditions of lending. Always the importation of construction machines will be included in such loaning agreement with the guarantees the construction equipment and plants will be re-exported after works finished.  

(4) To hire local engineers of required qualification and numbers

The host countries always want to minimize the impact to the national employment when they allow the foreign companies to undertake construction works. In general, labor employment is of less concern, because through immigration departments the number and quality of imported labor can be controlled and also the income and fees required to import the foreign labor will be more expensive than the locals.

But for both administrative and engineers, the issue to man the project is more complicated than calculating the cost difference in blending the foreigners with how many locals in what level of the hierarchy.

Usually, the contractors like to assign engineers and staff having long time work experience with them for projects undertaken. Because it’s clear they need to get familiar with the locals to be hired in the project for their unknown performance in technicality and personality; which will be converted into monetary terms not mentioning the possibility that the newly recruited will cause any incorrigible trouble. 

In particular countries like Singapore, the personal income is high or comparable to the expatriates, therefore the possibility existed that the general contractor may select third country personnel (TCN) to fill positions and thus not good to the employment of the educated. So, in most of the public work contracts the authority will ask the winning contractor to hire certain number of professionals, of which the definition is the citizens graduated from relative department with years of work experience. 

The sort of enforcement has tilted supply and demand between the employees and the employers, and in the worst case causing the difficulty to recruit local engineers in addition to pushing up the manning cost drastically in a country not so big. So, construction and engineering companies shall read the tender document and investigate the market closely.  

8) Acknowledge of difference and handicaps:

(1) Handicap in language.

People always think language problem shall be the most difficult part for working overseas, to certain extent, it’s true. But what make it big problem is the personality of the persons in charge of the works. Because the contract with the Client or subcontractor or vendors though may be written in local language, but translation can be made in English. And translators will be available in many cases and if the expatriates want to know the true meaning of everything from his counterpart that shall not be any problem.

English shall be basic for persons assigned for overseas works. We always see people complain about its complexity as foreign language; but it could be an excuse that people involved don’t have good work habit to read not because it’s a strange language. In other words, the same people may not read files and document in his own language very well, and their access to foreign contracts and works won’t be possible. 

If a person is anxious to know the project and how the assigned task proceed, he will try all means to interpret the situation for necessary actions; and the language shall not be a problem. If a person dedicates to his overseas work long enough, he may be able to conversant with different language, either English or local language; that’s why we say the language problem can be overcome.

However, company management shall establish criteria to encourage their staff to learn new languages, not necessarily only English, and we understand some companies in Taiwan have responded to people draw high score or obtain license in foreign language tests such as TOE, Thai, and Japanese.     

(2) Difference in cultural perception

Overseas construction or engineering works require big degree of interaction with local people, the contracts, deals or simply daily life are much influenced by custom, religion or politic. The foreign companies have to be aware that they’re actually surrounded by host of people in different culture.

Maybe there were the days that the local economic development lagged much behind the contractor’s country, that the foreigners always have feeling of supremacy and individuals will be proud of themselves and imbue disregard on the locals unknowingly. But thanks to the globalization and enhanced education, the locals in many countries get much confidence on tradition, religion and history.

And it means the people will be provoked for minor offence, among them, the most sensitive topic is religion. There’re many things that is sacrosanct and can’t be remedied in association with the belief. People working for any project, in any country shall be told to respect the believers for their religious activities even work efficiency at the expense. 

Understanding is the only approach for foreign people to appreciate different culture. It may be one way, but it is only one way especially foreign contractors can’t afford to work like aliens. 

(3) Difference in applicable code and standard

Every country has its own code and standard for engineering and construction, 

When the market size isn’t big enough so the country may not be able to establish their own rules, they follow the big country, usually consider the language, economic connection, geographical vicinity, or in the dramatic sense follow former colonial practice. 

Code and standard applied will determine how calculation and checks will be going on; and also, what the test and experiment shall be done. People have to get familiar with them because engineering work shall be carried out within months nowadays.

When construction or engineering companies go abroad, they have to determine before contract start whether or not they can deliver in time and in quality of the works; and it will affect the cost tremendously for difference in applicable code and standard.

For example, Taiwan establish its own code and standard, CNS, over long time mainly follow American ASTM, ASSHTO alike. Sometimes people understand JIS, DIN or BS, but when it comes for competition they will have handicap and sometimes large companies with many engineers may be able to send hordes of people to meet specified contractual requirement, but not always it could overcome the difference.

(4) Difference in executing safety and environmental protection rules

Safety, hygiene, health and environmental protection are vital for construction and engineering works since the stage project planning, work completion, commissioning and operation. But the rules, either its stipulation or implementation differ from place to place.

It’s not only a matter for cost or competition, sometimes the regulations are too stringent, and it’s a tendency in developing economies that the officers or legislators copy the “best” clauses from the developed countries, and aren’t implementable, if we call it idealism. Usually, the foreign companies won’t stand good chance to find a solution satisfactory to the parties concerned, and it means he has to decide to pursue the project or not before the tender.

It seems like that the difference in executing safety and environmental protection requirement is not so significant, but its implication in execution is enormous and only the locals will tell as a faithful partner.    

(5) Difference in Tax codes interpretation and application

The cost of taxation as it appears in terms of corporation and personal income, stamp, excise, property and withholdings tax may not be different to everybody undertaking the contracts, but knowledgeable people know how to save tax starting from the lowest tier of vendor/subcontractors, not to mentioning evading tax.

Tax codes interpretation and application need to take good accountants; however, the foreigners will never expect advantage for all their understanding and maneuver, Again, they’ve to rely upon their local partner, agent or employees; and absolutely a handicap compare to local competitors.

(6) Difference in labor management

It’s difficult for a foreign company to hire labor directly for whatever the project need. Normally, he would try to sub-let all the works to local subcontractors with a view that he won’t be further bothered by how to pay the labor at guaranteed efficiency.

Actually, the good local partner that a foreign company can expect is working as if he were a “comprador”. On the surface he has to take responsibility to take care the labors and at the same time to promise that their work will be done within budget.

The sub-contractors need to pay overtime, absorb idling hours and days, and naturalizing the unions if any of them exist and active, all of these can’t be tackled by the outsider. So, under the circumstance, they have to take the works for rates more than enough, and get compensated if something goes wrong including their own false estimation. 

And theoretically, the foreign company come to a country can choose and sub-let the works to whoever he thinks appropriate, but the management and efficiency problems are always there that he can never transfer them to local partner or subcontractors unless they’re knowledgeable and sizable enough to manage the labor problem.


2021年5月30日 星期日

 Part 7-2: Working Overseas, Advanced Civil Engineering, (NTUST, 5908701)
台科大高等土木施工學教材(2021) 

MT KAO (Blog: http://mtkaoforum31.blogspot.tw/)
(mtkaoforum31@gmail.com)  


3). Chances for Taiwanese Construction Industry to go for Overseas Market

(1) There’re two possibilities that either Taiwanese contractors come to oversea countries working as pure constructors with supposed superior construction technology and engineering ability to the natives; or to take the total scope of project development providing loans, complete planning and design, carry out construction, undertake operation and until transfer back the works to the owner.


In the first option, Taiwanese contractors go for overseas only win and make money when they’re proven competitive and efficient, that they’ve to show overall edges over local contractors who grow stronger day by day. And as described above, the overhead or added value enjoyed by pure construction works are limited and market become tighter and the rising local constructors are able to take almost every contract.


It won’t help whether or not the owner of the projects are governmental or private for Taiwanese contractors. As civil work is concerned, no places in southeast Asia will think Taiwanese contractors’ service is indispensable.


But if Taiwan can provide loans in connection with the construction contracts, the contractors will be welcome in many places where provision of loans will ease the financing strain to confine the development. The competitors in the project involving investment or loans will be European, Japanese or those from NIC countries. Taiwanese companies will have greater chances to get the works and the contractors may work for project management or real construction. However, the loaning agreements usually are between governments, so called “G to G”, to guarantee the return of the loan. The chances aren’t there now.


Should loans not be available, Taiwanese contractors or engineering firms will have to work as the subcontractors of the international developers and main contractors. And they need to prove they will be able to save money, keep quality and speed up the progress for developers or main contractors. And it means they have to contend with other NIC contractors or even the ones of third world origin.


(2) A foreign company can never be as efficient as the natives to organize local labor force or purchase cheap material. Working capital is also something that the contractors from developing economics no more feel they are short of. So, only projects with elements Taiwanese contractors will have advantages over the native companies, they will have chances to get the works. Say, better construction technology and work experience.  
However, Taiwanese sub-contracting system is a problem that the resources, especially those to support market development, are thinly divided among many sub-contractors. The Market is highly fragmented so that the main-contractors, even those with high revenue on the report, staff very limited number of engineers. This is another difficulty for Taiwanese contractor to pursue the overseas contracts in tendering and execution stages because you can’t send people from small company abroad without affecting their homeland activities.


(3) So, it seems like that only consulting companies can go to take limited amount of overseas engineering contract as much of planning and design works can be done remotely in Taiwan.


Of course, the engineering works done must conform with standards and norms such as BS, DIN, or JIS wanted by main contractors and not CNS or American codes usually followed in Taiwan.


Supervision will be another challenge because the owner or international main contractor wouldn't pay as much of Taiwanese expatriate will cost. So, majority of them require a competent local partner to second.


The purpose to work in overseas countries shall be reviewed. Will the business expanded to cover foreign countries be allowed to fetch overheads, profits or service charges as required? Or will it increase the sales of home country made product, software, construction plants or permanent equipment?

 

4). Adjustment needed for Company getting Overseas Contracts 


(1) Consideration shall be given to the overseas allowance, vocation, compensation for tax incurred in foreign country, care of spouse and education of children for the expatriates sent to foreign land in addition to their regular salary and bonus in home country.

(2) People sent to foreign land will face challenges and can very likely be working in desolated situation; and only elite of each discipline shall be assigned to solve the quandaries.

Contrary to the above, two problems always appear in a company undertaking overseas works: 1. sectionalism exists in the concerned departments, chiefs tend to send less qualified people;  2. After distinguished performance in overseas projects, many expatriates coming back home only to find out "good" positions having been occupied by people of inferred capability.

There must be a fair policy and under it a mature personnel management system covering domestic and overseas projects. The chief of department must be a stakeholder for success or failure of the projects the company undertaken.

(3) The percentage of overseas sale amount may be just a few related to total company revenue, but efforts to spent for supporting operation in different countries, such as accounting, taxation, currency exchange, law and rules abiding, local standards and codes, contractual administration, procurement, and financing arrangement can be unproportionally heavy in headquarter. 

The unfamiliarity and the relative massive cost to prop remote operation always hesitate the responsible managers of the supporting departments to throw in reasonable cost to administer the issues, until it become big problem. Thus, furthering the companies’ reluctance to take more overseas works.

(4) The company pursuing overseas works shall offer money, know-how, credited work experience and ready to deploy talented people for whatever the projects undertaken at any time. However, it takes time to obtain a contract, the company shall be big enough to dedicate for what they will have in hands given the short mobilization time

Ironically, big company and their follow managers only to think of overseas business at times when they feel jobs in hands aren't enough. But the contracting business will not come only to fit your schedule, again, only those with plenty resources can afford to do overseas work.

5). Assignment of People for Overseas Works.

(1) The assignment of branch or project managers of overseas works are critical. They’ve to be adaptable and adeptly in strange country: keen and quick to accept different culture; eager to defend own company’s interest and shun from any private agenda. 

The appointment has to be prudent because they’re one of the very few can be sent from mother company to lead in the places where the projects located because of the high salary difference compared with the locals.

In general, personality of a representative is more important than his education; cultural adaptability than language, and impulsive energy than professional experience.  

(2) It takes time to get the good contracts in overseas work, however, the company management is not patient to wait for the business success and is likely to push for immediate money count. For overseas work, meaningful scrutiny can only be made by people closer to the place where clients and projects are located, i.e., the representatives or the agent in the area. Under enormous pressure they may be forced to undertake projects not worth for risk and resource spent.

For the same consideration that the people in headquarter shall not be hasten to recall representative(s) from foreign branches or to change the local agent unless they’ve made mistakes hurting interest of the company. 

6).  Necessary Mentality Changes for Overseas Business Decision Makers

(1) The company management shall be knowledgeable for overseas business; and is willing and passionate to develop prospect in foreign lands. If the decision makers himself have overseas experiences themselves, it’s a plus.

For Taiwanese companies enjoy vigorous domestic business at the moment, they must understand prosperity brought by market protection is temporary, that only the industry strong in essence and endurable for foreign competition the companies’ future can be guaranteed.

In view of the problems that always happen in a small construction market, the management and employees of Taiwanese companies all alike shall realize the need to go out for challenge, is a hard but useful way to embrace the bigger market, not least to get baptized for advanced technology through early contact with the international competitors. 

Consequently, all of them shall be willing to strengthen expertise, learn international practice and adjust attitude and approaches. 

Before going for specific project, the Company must make sure it will have people experienced enough to go for assignment; or it have fair chances to recruit qualified people. 

(2) For operation in strange country, the company management shall open their  mentality. The worst sentiment that an expatriate or those sitting in faraway mansions may develop is the feeling of superiority toward the locals; they judged the people wrongly for talent and loyalty and have to pay the price for wrong decisions all the way to losing money and reputation.

Actually, an idealistic team shall consist of local agent (sponsors, partners), staff and expatriates; working intimately to overcome the difficulties waiting for foreign companies.

A capable and trustworthy agent or sponsor will obtain in time information, establish links with authority, and acquire competitive local resource for the company. Above all, they wouldn't get wrong contracts for the company for meager commissions to continue the agent ship.

In almost all the countries, the implementation of the projects, engineering or construction, require minimum participation of the local partner(s); a good one will offer the assistance to reduce the cost, solve problems related to license and official permits. Some of the reliable local partner will be eager and able to share the financial overburden resulted from the unbalanced payment schedule.

The employment of locals, especially, in the branch office for business pursuance and project supporting is vital. Their salary and chances of promotion must be assured; and the opportunities to learn the advancing technologies must not be reserved. Overall, the employment shall be made in a way more prospective than their engineering contemporaries working for native companies to ensure loyalty and reliability.

As people from Taiwan in strict sense will only work as passerby ultimately. Trust and confidence must be established with the locals as they're there forever. Even slight discrimination will be incubated and turn out to become source of disloyalty and misconducted behavior in the future.

2021年5月23日 星期日

 Part 7-1: Working Overseas, Advanced Civil Engineering, (NTUST, 5908701)
台科大高等土木施工學教材(2021)

MT KAO (Blog: http://mtkaoforum31.blogspot.tw/) 
(mtkaoforum31@gmail.com)  


1) Evolution of International Construction Projects:

(1) Stag 1: Free Movement of Construction Resources across the Borders

Lack or insufficiency of construction resources in terms of material, working capital, and technologies prompted the host countries to accept foreign construction companies to come to their turf when they build economies from scratch. It’s time when machine were expensive, native workers only available in number, local engineers yet to be trained, even the surrounding infrastructure to support the construction activities of the referred project were poor.

The recipient countries needed to implement the projects but they were also obliged to nurture their own construction forces for long term purpose. Therefore, they called for international tenders requiring more experienced and resourceful foreign contractors to be the main signing party, and demanded the local ones playing the supporting role.

Though the contractors from developed economies might complain the restraint sometimes made by the local partner as unnecessary; in general, as a stranger, they really need good guides helping them to recruit native workers, obtain regional material, and solving all kind of problems in a culture that they feel weird and helpless every so often.  

The local partners would act as sleeping partners or agents at the start when their ability to handle construction works was limited. But as time went by, they would grow in size and strength to advance their scope of undertaking. Their ascending, in certain extent parallel with the speed up economy development of the host countries, was inevitable that the international construction firms should have accepted and adjusted for their approaches. 

In view of the changing market in favor of the nurtured local construction firms, the governments used to welcome the international contractors would begin to amend the relevant laws so originally permitted free flow of machine, man and resources would be regulated. Always the new discretion would ask the foreigners only to carry out minor part of the business which the locals still need assistance; or sell expertise through “Technical Collaboration” arrangement by provision of plan, drawing and instructors. No more hefty revenues for the ones from overseas. 

After all, the governments holding the budget and opportunity to build the project should have final say to decide who he wanted to deal with. And for civil engineering, it had never been too difficult for people started with amateurism; therefore, the authority’s choice for the locals would be apparent because they could build things cheaply after brief learning process, and know how to navigate through local bureaucracies that foreigners would’ve never known.  

(2) Stage 2: Work Hard vs Work Smart! 

Thanks to the rising human cost and vanished technology edges, construction and engineering firms from developed economies had to withdraw from conventional third world market, only to see the fledging contractors of newly industrialized country (NIC) eager to fill the vacancy. The new comers took lessons learnt at home for past decades: trained professionals, learnt advanced technologies, and pay much attention for tangible construction, such as harnessing machines and plants once considered only the monopoly of the westerners for exceptional efficiency and exactness. 

So, the construction companies of newly industrialized country (NIC) wanted to go to overseas countries for projects that only yesterday the Westerners would come to their turf yelling yes and no for their technical and management supremacies. And now they had no problems to excel themselves as quick developed home market had offered many venues for practice.

Yes, it’s almost a definite conclusion that the construction companies from NIC would always out beat the westerners in international competition as price and schedule were concerned. But the outcome was disappointed as their accrued competence for overseas ventures didn’t even guarantee return of the costs let alone the profit. 

The reason is that the international contracts now are no more centered on pure construction. And in the name to make the investment more secure, a construction contract now require participation of those non engineers: notaries, law firms, inspectors, laboratories, certifiers, appraisers, unions, arbitrators etc. The absolute figure of fees paid to them is not significant within total contract price but still enjoyable sum compared to the meager overhead allowed for the hard-working general contractor, most of them now from NIC. 

The rules of the game have changed. We also understand the contract and its practice mainly are stemmed from custom and history; conditions and specification are drawn by contract experts from developed economies, language and proceeding offspring of the same culture. When westerners quit the substantial construction, they create added values continually to complicate the works in the form of "norm", "standard", and "proof", which the Asians may have difficulty to comprehend.  

It’s not to say that the values generated by technology, craftsmanship and labors for construction projects become less important. But it’s conceivable that working hard as the only way to thwart competitors from the developed economies isn't practical. The industry evolved, not everything can be repeating. 

(3) Stage 3: Investment Security Trump Everything and in Favor of the Establishment

The trend for construction works in 21st century is many of the gigantic projects will be invested by private entities as schemes like BOT or BT continuously churned out from governments with drained out coffer. Money is everywhere but the mammon doesn’t like to face uncertainty; so the professionals now including commercial experts are flattered to present risk free schemes to woo investors. The security of capital and return of vowed profit will be priority to trump anything else. As a result, the concerned parties have to pay attention in project phases starting from planning, design, construction, O & M, and until even marketing of the product.

Construction cost is important judged from the big number it used to be, but its share in total price become lower as non-engineering cost rises in weight. Then, the guarantees for work completion is everything, the evolution continues, that the real constructor may not be the one awarded the contracts because the records to complete the similar projects, capability to accelerate the delaying works, or financial power to indemnify the relevant parties will be more critical.

Public or private clients, when they want to initiate or kick start a valuable project, justification as to determine who shall be main partner is important because when something happens there must be questions drawn by stakeholders, only then the decision maker will find awarding to a reputable company is a safety play.

Nowadays there won’t be many conventional “build according drawing” construction contracts among international tenders, the contractors from advanced economies adapt very quickly that they go beyond traditionally a pure construction company will have to do so as to respond to the client’s diversified demand. On the other hand, many contractors from NIC consider technology and work efficiency most essential part of competition have met difficulties for overseas projects. 

So, no wonder that the main contractors undertaking great overseas project today don’t need to own any construction resource themselves, they can have many choices to sub-let part or whole construction works to single or dual constructors who maybe local, or a self-regarded higher tier contractor from overseas countries. He may exercise control and deliver the work effectively similar to what Nike or Adidas have done over jerseys and shoes. 

Under the so-called globalization market system, free flow of man, money, machine, and material is encouraged; and it seems fair. But the problem is now the companies in less developed economies will provide labor and skill for substantial part of the works but share limited added values compared with those set up the standard, specification, giving checks and certificates, maintain the margin and profit, but seldom bear the risk.

The 20th century capitalists in construction industry established powerful machine fleet, fostered engineering capability, put up contractual and legal frame, and monopolized banking system with all their cultural and political advantages indeed commanded the business for long time. But when those escaped from exploitation considered themselves a good learner to be one member of the new class; the 21st century capitalists evolve and thrive, that they now will secure capital and retain return through "possession" and "exchange", exhibited in forms like “added value”, “creation”, and “reputation”, to the frustration of late comers. 


2021年5月8日 星期六

Part 6-3. Features of Construction Industry explained in 5M, Advanced Civil Engineering, (NTUST, 5908701)
台科大高等土木施工學教材(2021)

MT KAO (Blog: http://mtkaoforum31.blogspot.tw/) 

(mtkaoforum31@gmail.com)


 4) Money

(1) Payment: cash, in kinds or goods (barter), deferred (BT), franchise revenue (BOT, PMI).

Men work for money, only after the contractor can get full payment the completion of the project is meaningful to him.

And because the construction contracts normally are with big amount of money, public or private owners will have various form of payment according to their financial conditions. Normally they will be paid in cash, kinds or goods (barter), deferred payment after completion and transfer to the owner (BT), or paid through franchise revenue (BOT, PMI).

It also possible that the form of payment can be mixed between the above mentioned methods. The contractor must evaluate its own ability to accept the form of payment, for example, when he would have accept the payment in crude oil over long period, he has to evaluate the possible oil price fluctuation and the extent and cost that he would have been protected by the futures.

The reliability of the owners, government or private companies must be taken into account.

(2) Standard international contract Forms

How the contractors get paid depends on the contract conditions entered with the Owners. Normally we‘d have type of contracts such as:

FIDIC  (The International Federation of Consulting Engineers) (Red Book 【building and engineering designed by the Employer】, Yellow Book 【M&E, building and engineering works designed by the Contractor】, Orange Book 【 design, build and turnkey works】, Green Book【 the short form of contract】 ,Silver Book【 turnkey contracts. 】, Gold Book for Design, Build and Operate Contracts】, Turquoise Book【 Dredging and Reclamation Works】),  NEC3(New Engineering Contract3, used for civil works in UK., Australia, New Zealand and Hong Kong, the language of it is simpler and the signing parties are said to be more equal), AIA(American Institute of Architects, form of contract popular in USA.), JCT forms of Contract(Joint Contract Tribunal, for architectural works in UK.)…etc..

As projects are different for each other, the contracts need to be modified to fit the situation; they will be reflected in so called Special Application (or Conditions) and leave the General Application (or Conditions) unscratched. Whatever slight difference in Special Application will result in big departure in reality so that the contractor need to read carefully even the author of standard contract or the Owner would have claimed they're the most friendly contract terms.

(3) Money beget Money.

Compared to the old days now that big component of  contractual money pays for intangible part of the project in the name to protect every party involved. The added value including the cost to acquire money, assure the delivery of the works, O&M of the project and even to the extent to guarantee the products or the purposed functioning of the project will be welcome by the customers. Thus, the added values are created.

But it is true that engineers are not playing the dominating roles in construction business because the invention as said is from improvement of technology, business skill, capital fluidity, which, financial, legal and MBA people intrude and colonize relentlessly.

Though money is everywhere (due to QE?), but they get more respected; people like to invent idea to attract the capital, for that they provide guarantees, mitigations and even placebo like assurance to fascinate mammon. Under the new trend, a big part of the construction projects will be controlled by hordes of non-technical people.

For example, the government has plain financial resource for construction project and it will be spent almost exclusively for construction related items last century. And right now, big chunk of them will be paid as financial cost for BOT and/or PMI as people argue private capital shall be required or investment on public works will lag behind. A small but still significant part of money will go to the so called independent third parties for their certificates, report and affidavits at non bargain-able cost (as to be disposed by those non-technical people), while the construction hands need to compete each other.

Engineers must realize, somehow, they would become a secondary role for the construction projects, but on the other hand, they could become a better manager than people of other discipline to control the whole project because they know better than any others. Of course,  if they reject to become more "general" they will lose the chance to be the dominating figure of their project.

5) Market

(1) Contractors with Lemming Mentality

As it's said above, there're 2,800 strong Class "A" contractors in Taiwan to apportion a small market; the threshold to go into the construction market isn't high as capital (relatively low to the contract amount) is concerned. When they get contracts, the contractors will find many sub-tier contractors more than eager to share risks and sometimes loss despite ability is in question.

The running cost for a Class "A" contractor is low in Taiwan, the minimum expense will be fee paid to registered PE, a tiny office, plus a secretary to answer the bell. When the bosses cannot get business, they just need to go for "hibernation", and pay such low cost for some time. They will wake up when they get contracts and then recruit people including manager and engineers, so as to activate the company. As a matter of fact, employees won't be against shoot and off employment styles because most of them like to attach themselves to the area they like, particular big city or home town, making themselves ready when someone get the contract.

So, the contractors of "entrepreneur" type are of the majority. They're competitive and spiral the awarding price, especially of public works down. The market practice is not possible to nurture big contractors with know-hows and experience.

But one day it will come, provoked by market mechanism destined to happen, such as sudden sabotage of dump trucks of 1990 (resulted in soil haulage hike and aggregate short supply), or sharp escalation of steel price in 2006. Many contractors didn't have sufficient provision for contingency gone broke and their number culled significantly before market re-juvenescence made competition rise  again.

The process repeats again and again; the contractors go up and down like riding on the changing tides. One moment, the contractors' number will be swelling like lemmings grow to incredible number in short spring time; the other moment the nature will work, drive some of them jumping from the cliff and the rest follow. The market are still there for another cycle; but the saddest thing is the professionals wouldn't have chance to lead while public has to bear most of the cost that speculators have to pay.

(2) Style of Competition: Lowest Bid, Evaluated Lowest bid, Value for Money.

The problem of construction industry in Taiwan is over competition. Lowest bid is blamed because under the bureaucratic system the budgets were considered to be right and a standard for the contractors. The winning price was considered as true market cost or the one edit them shall be subject to official chastisement. Automatically, people, the budget builders or the tenders will consider it as a bench mark for similar tenders. Vicious cycle will begin and the prices become less flexible waiting for another episode to correct; of course, it's always too late.

Evaluated lowest bid is taken with the hope that the best contractor and their offer can be selected as the best for the project; however, the winners may not be the most outstanding one, and the judges' supposed imparity can be second-guessed. Authority try to improve the criteria for evaluation of the bid only invite more criticism and so the evaluated lowest bid system stopped at 2007. For similar stories, BOT and PMI also suspended except for particular projects; and the tendering system returned to lowest bid for next decade.

It could be true that in recent years the contractors didn't make money and running business only to keep office open. They lose expertise because the poor overhead don't allow them to afford the employment of senior engineers. 

When they've made mistake individually, they suffer; when market changes drastically, everybody suffers too. Therefore several tenders in recent years, they are "aborted" because contractors consider the budget is too low and  schedule tight. So, the evaluated lowest bid is coming back, the authority may get lessons and be more careful to choose the "judges" this time. Hopefully.it will last long. 

The final goal for government spending shall be "Value for Money", in which, the project completed will worth money spent, it's subjective as modern construction will involve different requirement by different sectors, thus giving different evaluation. But it's starting, we wish the bad element in the market will be eliminated and professionalism will have chances to prevail.

(3) Elements of Competition.

A market considered normal will be the one that the consumer is most important. For public works the government is single biggest buyer, he can draw the lines to select the contractors based on their performance, past experience and readiness for the current tender.

It means the government can define a clear and objective criterion for elements such as price, technical approaches, time of completion, safety record, experience in similar works, existing work loading, managerial and technical resource in hands, records of contract disputes (with owners) …etc...

For international construction tenders, the owners usually will analyze and evaluate the tenders according to the criteria established objectively. The scores and the tabulation can then be submitted to higher ranking people, maybe figures with reputation, for review. The process will eliminate the subjective judgement to minimum to prevent the outside criticism and interference. 

It's true that during the selection of the contractors, the authority and invited judges will "play god" to bring up the winners, and the result maybe that the selected aren’t the perfect ones because many factors are involved during the selection and later execution. In Taiwan, people may not be patient and policy makers are susceptible to criticism, however, the rules shall be respected at least for some time. There will be some time for confidence building, even if people are not fraternally to each other.


(4) Defying the International Norms.

For long past and even for now, the developed countries especially Europeans and Americans have big say on the codes, standards, disputes solutions and financial arrangement of the international projects. They are establishment enjoy privileges and power more than their competency.

The Asian powers are late comers in the field and also they are to follow specifications and conditions established by the advanced economies. As a result not to have sufficient chances or clout to interpret the contract, they suffers considerable losses in international construction market despite they have good engineering knowledge and construction dexterity. 

We believe it's not an intended design based on the race and culture but is an essential market problem after long time practice, and realize to change it immediately will be difficult if not impossible. 

There could be solutions, one is forceful and intransigent, complete "westernization" like what South Korean have gone under through; that they're indisputably good in high rise building and complicated plant built-up. The other is to change the game rules as Chinese have approached in their Belt and Road Initiatives, success or failure, remain to be seen. 

People have to recognize that many of our practice in construction business, which shall be very local, actually involve many western norms; you modify them, or they change you. Again, to be patient.