Vietnamese contractors lose out in bidding war

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Low bids for infrastructure projects usually come accompanied by huge risks.

Contractors may do a shoddy job leaving work half-done or employ foreign manual laborers with a low salary. In an interview with Thanh Nien Weekly, Vu Khoa, chairman of the Vietnam Association of Construction Contractors, says it is not easy to prevent those with unreasonably low bids from winning projects.

Thanh Nien Weekly: Why do foreign bidders win big projects when there are many local qualified contractors?

Vu Khoa: Local contractors do not have enough capital for big thermoelectric, oil or gas projects so they have to depend on credit sources such as ODA, or preferential loans from international organizations like the Asian Development Bank, World Bank, or Japan Bank for International Cooperation. These loans often come with certain conditions that are hard to meet.

For example, the foreign lender for the Da Nhim hydroelectric plant project required the contractor to create an annual turnover of hundreds of millions of US dollars for three continuous years. At the time, the Song Da Corporation was doing well and had already built a 200 million kilowatt-hour hydroelectric plant but even they could not meet the requirements. We have to accept foreign lenders' requirements, so our firms are not eligible to win international bids. Thus, we (Vietnamese firms) end up as subcontractors for foreign bidders.

Now, there are many Vietnamese thermoelectric projects which are financed by loans from the Import-Export Bank of China. The projects are developed by Chinese contractors who win because they put forward the lowest bids. They offer employees very low salaries, typically VND1-2 million per month. Vietnamese workers will not work for this amount of money and so the contractor brings manual laborers to Vietnam from China.

These low bids can have bad consequences. For example, the price is too low for contractors to complete a project so they may end up revoking the contract, leaving the project unfinished. With no strict regulations in place, we cannot prevent this from happening.

How can we prevent unreasonably low bids?

It is very difficult to prevent unreasonably low bids. Project management boards should include people who are experts in the field. In reality, most members of the project management board do not have relevant experience or knowledge of the field.

If you have the relevant knowledge, you will be able to see if the bid is lower than the sum needed to cover production costs. You need to know how many bricks, how much cement and how much wood are needed to build a house.

Without this knowledge, you run the risk of letting contractors who put forward unreasonably low bids win. The Bidding Management Department under the Ministry of Planning and Investment, responsible for drafting the Procurement Law, said contractors who meet technical requirements, and offer the cheapest price, can win bids. However, if the bid is lower than production costs, contractors may end up skimping on construction materials.

We (the association of contractors) think that the contractor who offers a reasonable bid that can cover production costs should win. This way, the contractors do not suffer losses and spend the right amount of money on completing the project.

What is the solution for the problem?

A project management board with relevant, in-depth knowledge can prevent those with unreasonably low bids from winning the project. Responsible investors will also be able to see and deal with the effects of an influx of foreign workers. In theory, the law states that investors in a project should select experienced and qualified management boards. However, there are no concrete criteria for this. In some cases, recent graduates are on the management board when, obviously, they do not have enough experience. Meanwhile, some investors such as the head of a university or a director of a hospital do not understand the field. They should invite construction experts to join the project management board.


"Despite Vietnam being a developing country with many construction infrastructure projects, we have not yet developed a modern construction force to control the domestic market, and then tap into foreign ones. There is no long-term investment in the field, so we do not have enough qualified contractors to carry out the domestically-invested projects. Therefore, foreign contractors win them.

Other countries have policies that support domestic contractors. Vietnam, meanwhile, has no such policies.

In the past, we, with the assistance of many foreign experts, built Thac Ba Hydroelectric Plant over a period of ten years. Now, Vietnam is capable of building a hydroelectric plant with triple the capacity of Thac Ba in just three years. Vietnamese contractors have also built large bridges and skyscrapers, which they couldn't do in the past.

Why does the law not state that Vietnamese bidders should be the main contractors for state-invested projects? Why can we not rent foreign bidders to do only the work that we are not capable of doing? The biggest issue is why are we the employees when we should be the employers? In the context of a market economy, we can use international technology, and enable our contractors to become the winning bidders."

Vu Gia Quynh, general secretary of
the Vietnam Association of Construction Contractors

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