The "Contract trap" is behind the huge loss of the Chinese Iron Construction Benchmarking Project

Source: Internet
Author: User
Keywords A trap a huge loss a benchmark
Once, by the China Railway Construction Co., Ltd. (hereinafter referred to as China Railway Construction, 601186.sh/01186.hk) to "go out" of the landmark Saudi Megassafa to Mugodasha Light rail project (hereinafter called the Mecca Light rail project), but now has become the domestic railway infrastructure industry giant "Waterloo".  More than 4 billion yuan of huge losses behind, seems to flash the contract trap, "political engineering", but in essence is a lot of Chinese enterprises overseas expansion ambitions under the expansion of their comprehensive ability to pay a lot of "tuition" in miniature.  "Benchmarking Project" The Chinese iron Construction announced recently that its contracted Saudi Mecca light rail project is expected to be a huge loss of 4.153 billion yuan.  The news was an uproar.  As an oligopoly in the area of domestic railway infrastructure construction, the Chinese iron building which originated from "Tiedo" and China Railway undertook nearly all the domestic railroad construction projects, and two companies accounted for more than 80% of the whole market.  According to the Ministry of Railways 2010 years of planning, railway infrastructure investment of about 700 billion yuan, as the beneficiary of the large-scale railway infrastructure construction in recent years, China Railway built in many channels suffered "at home to make pots full, in foreign countries when the black sheep" such a barrage of accusations.  However, the Mecca Light rail project is a very special project for Chinese CRCC. October 12, China CRCC President Zhao GUANGFA and the Saudi Arabian Urban and Rural Affairs minister, Prince Mansour, met in Riyadh, Zhao GUANGFA also special to Chaffon pointed out that the project is the Chinese railway "going out" of the landmark project, is so far the world's largest design, operation mode, the shortest construction period,  The light rail project with the worst external climate and environment.  And it seems that it is precisely because of these "the most", so that China's iron construction in the course of the project encountered an unexpected difficulty.  Zhao Guangfa also said in a meeting with Chaffon that the project was "confronted with a series of great challenges and unforeseen major changes and difficulties". China Railway construction in the October 25 announcement of this also described: in the second half of 2010, the project entered into large-scale construction phase, the project is fully launched, the actual number of projects than contracted when the expected increase in the number of projects, coupled with the owner of the project's 2010 transport demand than the contract provisions significantly increased,  The owners responsible for the underground pipeline network and the serious lag of land expropriation, owners to add new functions of a large number of prescriptive changes to some of the completed projects to readjust and other factors, resulting in a significant increase in project workload and cost investment, the planned duration of the phased delay.  Although the controversy over "political engineering" points to the owners in many ways, Zhao Guangfa in his meeting with Prince Mansour, while still saying that China's iron establishment "can ensure the scheduled, durability, excess and successful completion of the project construction task".  Therefore, there is a view that this is a "political project", will be in the knowledge will be under the situation of huge losses still "not speaking conditions, not bargain" to ensure the duration. In this respect, the Chinese ironThe head of the building denied, and said that only through the project into the Saudi Arabian market and the Middle East market, establish the Chinese iron built in this market brand. "The idea of political engineering is itself a liability." "A person in the industry who has many years of overseas engineering experience believes that" the government may be matchmaking for projects, but the project itself is a thorough commercial project, with a number of companies bidding for this project, the Chinese government did not require the construction to undertake the project, but the Chinese railway construction through the government's operation to win the project. "" The main reason for the loss is the cost of China's railway construction estimates, "said the foregoing," if the contract terminated under the previous contract, the owner can make a claim, the various losses claimed and the implementation of the contract has caused losses, the total amount may not be less than the losses caused by the project. "China's top brass has previously disclosed in the media interview that the project has the possibility of intermediate stops," according to the original agreement, if the project can not be completed, the other party forfeit the performance guarantee, the maximum loss of 1.2 billion yuan, but China's iron building comprehensive factors do not choose to do so. "In the view of the foregoing," the quotation is not careful analysis of the contract and norms, and according to the contract and the specification of a targeted inquiry, but based on past domestic experience to evaluate, this is a large number of projects in overseas projects loss of a common cause. "Contract trap" caused huge losses according to its announcement of October 25, "The project adopts the EPC+O&M General Contracting mode, the project contracted only conceptual design, mainly because the owners proposed new functional requirements and the increase in the project volume, the project in the implementation process, the total cost of the contract is expected to increase gradually." "This is the first time the company has used this model to contract the project," insiders said.  According to this, it seems that China's CRCC is like falling into the other party's set up a "contract trap." "The Middle East project, is generally in Europe and the United States in some countries consulting companies to prepare contracts and norms, the contract will generally contain very detailed technical specifications." Technical specifications for equipment, material parameters, construction technology, etc. have very meticulous requirements, in the contract and specification of manufacturers, brands are also very common situation, many contracts will have a designated subcontract. In this case, if not careful analysis of the norms, but take it for granted that the successful use of domestic materials and equipment, will inevitably bring huge losses.  Said the industry insiders frankly. One person with similar engineering experience thinks: "For EPC contract, the construction party needs to do more work to evaluate the concept design before bidding, and estimate the total project quantity more accurately, although it will consume more time and manpower and financial resources, but there will be a more prudent scheme to reduce the risk. "" If the contractor does not make a detailed design during the tender, only in accordance with the concept of the design price quoted by the owner, the contract is signed after the owner of the concept design based on the design, and then submitted to the owner for approval, when the contractor and the owners in the functional requirements will beresulting in a dispute, resulting in the contractor's initial design being difficult to approve. Ultimately, the result is that either the contractor accepts the owner's request, increases the cost, or insists on not changing the time limit according to the owner's advice, and may eventually go to court. But it is hard for contractors to win if they really have to arbitrate or go to court.  "A person who has experienced similar engineering experience said. "This only means that China CRCC is completely unfamiliar with the bidding and operating mode of the Middle East project." "The foregoing said," Many of the projects in the area, including government projects, were first tendered by the contractors and the owners were repeatedly negotiated among the contractors with lower tender prices, but this should not be used as an excuse for loss because, in this logic, if this is just a bidding project, The price of the Chinese iron construction is the price of the tender, but not many times, the loss will not be so much. "There are no companies in the country that can manage this type of general contracting model, because the level is not yet available." "Those in the industry who have had years of overseas engineering experience think," Chinese enterprises in the operating mode and standard standards are far from the European and American companies, early in such as Africa aid projects, this weakness has not been exposed, but in the Middle East and Europe and the United States first-class enterprises in the competition to show weakness.  "The Saudi Mecca Light rail project June 2008, China and the SHA signed the" Cooperation Agreement on the strengthening of infrastructure construction.  The project contract was signed in February 2009 between China Railway Construction and the Saudi Ministry of Urban and Rural Affairs.  2009 earnings confirmed loss of 294 million yuan.  2010.5 Annual report confirmed loss of 254 million yuan. 2010 Three quarterly report confirmed loss of 3.605 billion yuan.
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