This article first appeared in The Edge Malaysia Weekly on November 11, 2024 - November 17, 2024

The fact that Ireka Corp Bhd (KL:IREKA), a company that is financially distressed, landed a RM1.07 billion construction job for the Pan Borneo Highway Sabah project last month came as a surprise to many.

A government MP disclosed in parliament last week that Ireka is the third company to be awarded the same contract. The contract to upgrade the road from Kampung Lomou Baru to Kampung Toupus (WP33), which is part of the Pan Borneo Highway Sabah project, was initially awarded to MTD Sdn Bhd.

According to Kota Kinabatangan MP, Datuk Seri Bung Moktar Radin, MTD in turn sub-contracted the job to Gammerlite Sdn Bhd, which then in turn passed it to Ireka.

For Ireka, which is listed as a PN17 company for having inadequate shareholders equity and accounts qualified by auditors, the contract of RM1.07 billion is vital for its turnaround. Hence, one would assume that Ireka took on the job with a view to make a profit.

Assuming Ireka makes a profit, what would have been the total award of the project when it was initially awarded to MTD? Did MTD and Gammerlite make a margin before handing over the job to Ireka?

MTD was also awarded another work package in the project, although it was not among the eight companies shortlisted for that package. According to Works Minister Datuk Seri Alexander Nanta Linggi, MTD got the job because it was the lowest bid and had been awarded the project by the Ministry of Finance.

Subcontracting a job is common in the construction industry. However, it normally involves one layer, especially for big jobs from the government. If there are going to be several layers of subcontractors, it would appear that the margins are very healthy.

In the case of the Pan Borneo Highway Sabah project, the government has nobody to blame but itself for awarding jobs with such healthy margins that the main contractors are able to subcontract them several layers down.

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