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Ssangyong E&C News

Ssangyong E&C Wins Overseas Contract at Fair Price

2019-01-02

On Boxing Day, Ssangyong E&C shared the delightful news that it had secured a contract worth USD 750 million (approx. KRW 850 billion) in Singapore. Commissioned by Singapore’s Land Transport Authority (LTA), the project involves the construction of Sections 102 and 111 of the North-South Corridor (NSC). For Section 102, Ssangyong E&C has formed a consortium with the local civil engineering firm Wai Fong. The company is the sole contractor for Section 111.

 

Korean construction companies have long held a reputation for being very competitive bidders, which made me suspect that the company had secured the contract through cut-throat competition while reminding me when Samsung C&T won the LTA’s underground two-story expressway construction contract last year at a disappointingly low price. I was deeply worried that Ssangyong E&C might have followed suit.

 

However, the bidding records available at the official LTA website alleviated my concerns. To begin with, the lowest bidder for Section 102 was the Chinese firm Sinohydro, whose price was SGD 468.22 million. Even though the Ssangyong E&C-Wai Fong consortium, whose bidding price was SGD 482.50 million, was undercut by Sinohydro, the joint venture was able to secure the contract by outbidding Sinohydro in other categories such as technological expertise.

 

When it comes to Section 111, Ssangyong E&C, which has been ed as the sole contractor, has accomplished an even more remarkable feat. The company was the third lowest bidder, with lower bids by two Chinese competitors. In fact, its bidding price was more than SGD 100 million higher than that proposed by the Beijing Urban Construction Group. Still, as in the case of Section 102, Ssangyong E&C was able to turn the tables on its competitors, by capitalizing on its technological prowess and other strengths. 

 

This fair-priced winning bid by Ssangyong E&C is far more significant when the less-than-ideal circumstances of Korean construction firms are considered. Most assuredly, the company couldn’t have set a better example at a better time.

 

Recently, there have been signs that the domestic housing market is destined for a downturn. In fact, companies are acting cautiously, delaying preconstruction sales. Jobs are shrinking at home, and there is no clear timeframe for when economic cooperation between South and North Korea will begin in earnest. Against this back, the only conceivable way out is overseas business growth.

 

These circumstances remind us of the period in the aftermath of the 2008 global financial crisis. At the time, as the domestic housing market went into a steep decline, construction companies strived to expand their overseas business operations. In the process, cut-throat competition among domestic builders often forced companies to bid for contracts at less-than-fair prices. This left a big scar on the industry. Large construction companies incurred hundreds of millions of dollars in losses and experienced earning shocks. The scars still remain and, in some cases, continue to cancel out profits from recently completed housing projects.

 

At a time when domestic construction firms may, once again, be falling into the same vicious cycle, Ssangyong E&C's winning bid is significant in a very meaningful way, which deserves high praise. In all likelihood, it was difficult for the company’s Overseas Business Division to refrain from submitting a very low bid. In construction bidding, the highest points are assigned to the bidding price category. As such, considering their superb technological prowess, domestic construction companies are almost guaranteed to win overseas contracts when they submit the lowest bid.

 

However, Ssangyong E&C has refused to surrender to such temptation. Although the company proposed a fairly reasonable price, it fortunately managed to maintain profitability. It is my sincere hope that Ssangyong E&C and other domestic construction companies secure more contracts this year. I also hope that they make great strides, not only in Singapore but also in other regions such as the Middle East and Africa. Lest we forget, this hope comes with a caveat: Do not forego a minimum level of profitability.