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Construction industry cautions on relaxing rules for foreign contractors

Published March 27, 2021, 6:00 AM

by Bernie Cahiles-Magkilat

The Philippine Constructors Association (PCA) has warned that the move to further open the domestic construction industry to foreign contractors could displace Filipino firms, especially the small players.

PCA President Wilfredo Decena issued this warning amid a projected growth in the sector that should fuel the recovery of the domestic economy this year after slumping 26 percent last year, sending the national gross domestic product (GDP) to a steep 9.5 percent year-on-year drop.

Decena noted there are sectors that had been pushing for the unrestricted entry of foreign contractors that could further displace Filipino contractors, particularly SMEs which comprised 97 percent of all registered contractors in the country.

“This is happening while other countries have taken steps to protect and support their local industry amid the global pandemic,” Decena said.

Moves to open up the construction industry to foreign competition won initial points when the Supreme Court in a ruling allowed foreign contractors to have regular licenses, which are reserved only to Filipino-owned firms.

In the Implementing Rules and Regulations of RA 4566 or the contractor’s license law, a regular license is reserved for an issued only to Filipino-owned firms, either fully or at least 60 percent.

Foreign firms, however, when undertaking a construction project in the Philippines are issued only special licenses. A regular license allows the firm to engaged in construction for as long as the license is valid, while a special license only allows the firm to engaged in a single specific project.

The high court ruling effectively grants foreign contractors the same regular construction contractor’s license as Filipinos do.

The SC decision stemmed from a case filed by Manila Water Company, which asked the Quezon City Regional Trial Court to declare the special license rule void to pave the way for a foreign firm to work on its waterworks and sewerage system. On February 10, 2015, the lower court declared Section 3.1, Rule 3 of the IRR void.

In a statement, Decena explained that PCA is not averse to the entry of foreign construction companies which are already allowed to operate under existing laws and regulations. “What we are concerned about would be the unregulated entry of foreign-owned construction companies without the necessary safeguards and programs for the local construction industry,” he said.

Aside from the entry of more foreign competition, PCA said prices of construction materials are rising.

Decena said the price monitoring activities of the Department of Trade Industry showed that prices of cement increased by 2-6 percent from its pre-ECQ prices. Steel prices from pre-COVID until now have gone up to 15 percent at least Copper is now having a major surge, up to 50 percent.

He attributed this to logistics cost that was greatly affected by the temporary hampered movement of the supply chain during the ECQ period.

Decena said that timely public spending on infrastructure would boost the industry despite soft private construction investments as the national government has allocated a sizeable P1.1 trillion of the P4.5 trillion national budget this year to infrastructure projects.

But he also said that some contractors are having a hard time in their collection. “We are hearing of contractors, particularly the small and medium companies, being unable to close any projects at this time. Public investments need to fill the gap until investor confidence is restored,” he said during the recently-held PCA regular membership meeting.

As part of the ten-point industry trends and challenges discussed during the meeting, Decena called for the prompt payment of contractors, especially the SMEs, since they were already absorbing extraordinary costs related to COVID-19.

In addition, he added that the current quarantine conditions have exacerbated the shortage of skilled labor force and skills mismatch.  As part of its thrust for the year, PCA is further expanding its knowledge and skills development program nationwide.

On top of all these, PCA reminded members to be prepared to continue complying with evolving health and safety protocols to make construction sites virus-free.

Also identified as among the top trends in the construction industry this year are the acceleration of digitization and other emerging technologies to increase efficiency and productivity, and the move towards sustainable infrastructure which is not just green but also resilient.