CRITICS have charged that a proposed Federation of Construction Companies will be

nothing less than a cartel of big builders that will eliminate competition and opposition

in the industry.

Two executives making the charges say the "cartel" will set industry prices

far above market costs, guaranteeing enormous profits to its members, and adding

millions onto the cost of construction in the Kingdom.

They say investors and other firms will be forced to do buisiness only with the federation,

which will have an effective monopoly.

An official from one the big firms which will likely be a member of the federation

agreed that only federation members should be allowed to build, but only to ensure

quality control.

Charges that the federation - once it's set up - would be a price-fixing monopoly

have been denied by most of the big firms approached by the Post.

The federation is still in the planning stages but its eventual existence is undoubted.

The two executives worried about the federation said it would operate through the

Cambodian Chamber of Commerce.

Officials from the Chamber of Commerce and the Minstry of Public Works acknowledged

they had heard the federation was being set up, but had not seen a detailed proposal.

"Nothing [about the federation] has been finalized yet," said Jean-Paul

Seng, executive director of Seng Enterprice, a member of the Chamber of Commerce.

Seng said: "The Chamber of Commerce is receiving a lot of interest in Cambodia's

construction industry.

"Members of the federation should also be members of the Cambodian Chamber of

Commerce, and there should be a rule that all construction is completed by members

of the federation because that is the best way to ensure quality...

"I have no comment about whether the federation will be interested in prices

in the future."

However, the two critics say that the federation's prime concern will be to fix prices,

not necessarily to uphold quality.

Whereas current tendering processes are more or less open to all interested companies,

the cartel will "convince the government to pass a regulation that only Cambodian

Chamber of Commerce companies should be eligible to bid for construction projects,"

one executive predicted.

According to them, the federation will establish a grading system of "qualified"

companies and their capabilities. It will determine which company will bid for a

project, the range of the bid prices, and which company is awarded the contract.

Big building firms spoken to by the Post deny such allegations.

They argue that they are solely interested in guaranteeing the quality of construction

projects, and maintain the federation will rationalize the tendering procedure and

establish minimum criteria for construction companies, such as ensuring that they

have insurance and will complete the project on time.

"Concern for quality is only a mask," responded one executive. "They

are currently cutting their throats by undercutting each other. This cartel will

virtually eliminate competition. They will never lose a bid when this is up and running."

He likened the emergence of the federation as "still in the conspiracy stage".

He also said that is is likely that the Ministry of Commerce or Public Works will

impose a series of regulations and licenses that only Cambodian Chamber of Commerce-member

companies can meet.

He said this would mean that an overseas company interested in constructing an office

building in Phnom Penh will be required to hire a construction company registered

with the Cambodian Chamber of Commerce. A company that is not a member will not have

the opportunity to underbid the cartel, because it will not be invited to tender.

According to the executive, once it had eliminated the possibility that a non-cartel

firm can submit a tender, the federation would then set tender prices. Cartel-member

companies would bid independently for a project, but they will base the amounts of

their bids on industry-wide prices set by the cartel. The fixed prices will be 20

to 50 percent higher than current market prices, according to the estimates of one

executive.

The cartel would "guide" an investor's decision by determining which company

would present the lowest bid. "In Cambodia," the executive explained, "the

lowest bid wins the contract." The cartel would use its power to allocate projects

among its companies to ensure that the members receive roughly a similar amount of

profits, he said.

A company that violated the rules by underbidding the fixed prices on a certain project

will not be invited to tender the next project, the executives said

The federation could be operating as early as the end of this year. It is currently

in the process of "inviting" firms to be members.

"Don't expect prices to jump 20-50 percent as soon as the cartel is set up,"

cautioned one executive. "They know they will be under some scrutiny. Prices

will increase over a longer period of time."

According to the executive sources, companies that were not members would find it

extremely difficult to conduct business when the "cartel" was operating.

"A non-cartel company will be extremely vulnerable to supply disruptions or

price increases for materials supplied by a cartel company," he said.

"[The cartel] is a beautifully constructed idea," he said. "A firm

will be crazy if it doesn't join it: profits are guaranteed."