Unless fully disclosed and clarified by the Department of Environment and Natural Resources, the estimated project return of the Manila Bay white sand project could reach a staggering 55-percent of its approved budget.
First, some numbers and assumptions.
a. The approved budget of the Manila Bay project stands at PHP 397-Million.
b. A sizable portion of any construction project consists of labor and materials. A portion includes the payment of Value-Added Tax and the typical contractor’s return of around eight percent.
c. For this project, the bulk of the work are earthworks, particularly backfilling. There are no other major works for this project except earthworks.
d. In DPWH, the typical unit cost of backfilling work is around PHP 442.89 per cubic meter. It will be assumed that it costs PHP500 per cubic meter for simplicity.
e. The project requires a total of 164,700 cubic meters of sand. We will make projections based on dolomite pricing at 600 per cubic meter and generic sand at 1000 per cubic meter.
f. It is assumed that the actual project budget is the same as the approved project budget.
Now, the projections: With backfill work costing PHP500 per cubic meter, this amounts to PHP 82,350,000.00.
A. Using dolomite sand
a. Using the 2017 Mines and Geosciences Bureau pricing of dolomite at 600 per cubic meter, the total price of 164,700 units of dolomite is PHP 98,820,000.00.
b. Adding the cost of backfill work and dolomite units yields a baseline total project cost of PHP 181,170,000.00
c. Subtracting the baseline total cost from the approved budget yields PHP 216,727,376.62.00.
d. On its face, this constitutes a gross margin of 54.47%.
B. Using generic sand
a. The market price of generic sand stands at PHP 1000 per cubic meter. 164,700 units of generic sand is PHP 164,700,000.00.
b. Adding the cost of backfill work and generic sand units yields a baseline total project cost of PHP 247,050,000.00.
c. Subtracting the baseline total cost from the approved budget yields PHP 150,847,376.62.
d. On its face, this constitutes a gross margin of 37.91%.
C. DPWH limits contractor profit to eight percent for projects with estimated direct costs above PHP 150-Million
a. DPWH allows a profit margin of only eight percent of a project’s estimated direct costs.
b. Using dolomite sand’s baseline project costs, margin should only be around PHP 15,753,913.04.
c. Using generic sand’s baseline project costs, margin should only be around PHP 21,482,608.70.00.
We’d glad to be proven wrong. But in the meantime, this.
Terry Ridon is the convenor of Infrawatch PH. He is currently enrolled in Harvard Business School’s General Management Program and recently received the Executive Certificate in Public Policy at Harvard Kennedy School.