Construction sector receives a lifeline

In the Edgedaily today, there is a report on the government’s latest move in revising the new variation of price (VOP) conditions for government construction jobs (go here). To wit:

The Ministry of Finance had on Aug 6, 2008 released a circular on the revised VOP rules that include an enlarged VOP list.

The new items to be included into the VOP list are for civil engineering works rather than building works and there are six new items rather than 11 as previously stated.

The revised VOP list also qualifies mechanical and electrical (M&E) works for VOP claims and allows VOP for design-and-build contracts on the same basis as conventional contracts instead of just steel bars, even though the 50:50 risk sharing remained.

“Besides further liberalising the VOP claims, the government will also consider a three-month extension for projects which are on-going between Jan 1 and Aug 6,” said ECMLibra Research, adding that the new VOP would be backdated to Jan 1.

The report, which summarized a research report from ECMLibra Research, pointed out that Gamuda is likely to be the biggest beneficiary of this revision. As result, we are now seeing a sharp rise in the share price of Gamuda (gaining 10 sen to RM2.92 as at 10.00 am). From the chart below, we can see that if Gamuda can surpass the strong horizontal resistance of RM2.85-90, it may proceed to test the psychological RM3.00 level.


Chart: Gamuda's daily chart as at August 12th (source: Quickcharts)