Lack of coordination at HBC’S contract department

UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business Tran Minh Tam LACK OF COORDINATION AT HBC’S CONTRACT DEPARTMENT MASTER OF BUSINESS (HONOURS) Ho Chi Minh City – Year 2019 UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business Tran Minh Tam LACK OF COORDINATION AT HBC’S CONTRACT DEPARTMENT MASTER OF BUSINESS (HONOURS) SUPERVISOR: Professor Doan Anh Tuan Ho Chi Minh City – Year 2019 LACK OF COORDINATION AT HBC’S CONTRACT DEPARTMENT Table of Contents Executive Summary Company Overview 1.1 Hoa Binh Construction Group J.S.C 1.2 Contract Department Symptoms High and increasing Days sales outstanding Problem identification 10 3.1 Potential problems 10 3.1.1 Inefficient project coordination at Site and in back office 10 3.1.2 Lack of long-time working employees 12 3.1.3 Lack of coordination within the department 12 3.2 Validating problems 15 3.2.1 Problem Validating 1: Inefficient project coordination at Site and in back office 15 3.2.2 Problem Validating 2: Lack of long-time working employees 17 3.2.3 Problem Validating 3: Lack of coordination within the department 18 3.3 The important and consequences of the problem 20 Cause validations 23 4.1 Potential causes 25 4.1.1 Work Overload 25 4.1.2 Poor Communication 25 4.1.3 Lack of work-interaction 26 4.2 Causes Validation 26 4.2.1 Validating the first cause: Work Overload 26 4.2.2 Validating the second cause: Poor communication 30 4.2.3 Validating the third cause: Lack of work-interaction within the department 31 Alternative solutions 34 Solution – Provide orientation and internal knowledge sharing class 34 Solution – Setting goal and specific tasks for employees in HBC E-learning System 37 Action plan 40 Supporting information 40 7.1 Interviewees‟ Demographic 40 7.2 Interview Guide 40 References 43 Appendices 47 Appendix 1: Definition of theoretical frameworks 47 Appendix 2: Form of proposal 48 Appendix 3: Bidding results in 2019 of HBC (1st and 2nd quarter only) .52 Appendix 4: Days sales outstanding of HBC, CTD and PHC .57 Appendix 5: Transcript summary 58 LIST OF ABBREVIATIONS HBC Hoa Binh Construction Group Joint Stock Company DSO Days sales outstanding EPC Engineering, Procurement, Construction CTD Coteccons Construction Joint Stock Company PHC Phuc Hung Holdings., JSC UEH University of Economics Ho Chi Minh City UOL University of Law Ho Chi Minh City QS Quality Surveyor AR Account Receivable LIST OF TABLES Table 1: Data of net sales, average account receivable, account receivable turnover ratio and day sales outstanding from January, 2015 to December, 2018 in HBC Table 2: Data of due dated value of 10 on-going biggest projects from 2015 to 2019 in HBC 11 Table 3: Data of personnel in Contract Department in 2019 in HBC 12 Table 4: Data of payment in Sunshine City Saigon Project in HBC 15 Table - The assignment of the Main-contract execution of the Contract Department during the 2019 period – quarter 1, 29 Table - The assignment of the Subcontract execution of the Contract Department during the 2019 period (with ONG = Ongoing, STO = Stop, COM = Completed) 29 Table Estimated costs of two alternative solutions 40 Table - Action plan of two selected solutions from June 2019 to January 2020 39 Table - Interviewees’ Demographic 40 TABLE OF FIGURES Figure 1: A part of HBC organizational structure Figure 2: Contract Department ‘s organizational structure Figure 3: Data of day sales outstanding from January, 2015 to December, 2018 in HBC, CTD and PHC Figure 4: Contract Executive job’s description in executing Main Contract in HBC 19 Figure - The display of HBC E-learning system (http://www.el.hbcr.vn) 38 LIST OF DIAGRAMS Diagram 1: Initial cause-effect map of Contract Department in HBC .14 Diagram 2: Updated cause-effect map of Contract Department in HBC 24 Diagram 3: Final cause-effect map of Contract Department in HBC 33 Executive Summary Over the last couple of years, the development of Hoa Binh Construction Group J.S.C has been significantly recognized in the construction industry However, during the difficult times ahead that construction companies are about to encounter, constantly increasing in account receivable has been recorded as a cautious signal in financial report of the company This paper is about to give a full picture of how a typical construction company struggling to find the solutions to solve the mentioned symptom By first, the researcher gives a short portrait of the company Then, by some intensive working, the author identified an apparently seen symptom before using some techniques data including qualitative research such as focus group to establish three potential problems, follow then by reviewing literature and further conducted an in-depth interview in confirming the main problem and its important and consequences The research also gives further look at the potential causes and once again validating them to find the main cause and sub-causes in order to give the rightful solutions for an agency to improve Throughout the research, readers may find there are still some connection and contrast in and between the literature found and the answer received from the interviewees, as well as the difference in perception of people from the executive level, to the deputy manager level and to the director level The paper also pointed out some limit of the focus group technique to get the clearer picture at the symptoms and potential problems of the company Furthermore, the solution is given to enhance the effort of cure the department problem first, before having affection to the symptoms of the company Company Overview 1.1 Hoa Binh Construction Group J.S.C Having just celebrated their 30 th anniversary in operating in 2017, Hoa Binh Construction Group J.S.C (HBC) – one of the pioneers in the construction industry, has gained itself a valuable image in the market HBC has been constantly awarded billions contract over the years, especially as the role of the General contractor (EPC), Main contractor and Design and Build Contractor The mission of the company was once to become the leading construction company in Vietnam, however, the company has been expanding their mission to become one of the competent contractor in the world, beginning in Canada, Australia and Myanmar The company started his first sign when allowing the Hyundai Elevator to buy stocks and get the first control of the company, the private placement of shares to foreign partners will be completed in the second quarter of 2019 The overall of 2018 saw the company revue increase times over the year of 2015 and the profit is even more impressive in figures, increase as almost times over the year of 2015 Source: HBC‟s website (www.hbcr.vn) Figure 1: A part of HBC organizational structure 1.2 Contract Department As the contractor, it could be clearly seen that companies has to compete to get the jobs among the other competitors When things going the right way, that means when the HBC is awarded the contract, there has to be a department who takes the responsibility of review, negotiate and draft the contract for signing That being said, such people shall own knowledge in a mixed between the construction field and the legal one The Contract Department was established with the aim to (i) Review, negotiate and draft the Main Contract with Owners/ Developers, (ii) Check the approved budget with the approved Subcontractors before review, negotiate and draft subcontract with Subcontractors, (iii) to coordinate with other departments in the company system to complete the general mission of HBC Figure 2: Contract Department „s organizational structure It can be seen in the Figure that Contract Department is one of the four Departments located in the Supply Division The Contract Department is led by Mr Nguyen Le Tan - the Director of the Supply Division and Mrs Nguyen Thi Hoan Deputy Contract Manager During the operation over the last few years, some symptoms of the company has been recorded Therefore, this thesis will indicate those symptoms and investigate whether there is an existence in those symptoms and the role of the Contract Department In other words, the purpose is to analyze the link between the causes, effects and symptoms Symptoms High and increasing Days sales outstanding For construction companies the monthly bills or draws to the Owners of the construction projects constitute an account receivable until the bill is paid (1) It is inevitably seen from the financial reports for over the last 04 years that the receivables of HBC gradually increases According to Bryk (2), in case the company needs to get cash to meet its obligations with other parties since Owners/Developers are paying late, it could bring up many financing charges Incurring overdue account receivable still has a cost Instead of having free cash-flow to put resources into development opportunities, purchase new machinery or establish new items, your money is tied up on balance sheet Keeping the account receivables too high may have seriously affected on the cash flow of the company, and therefore the company has to delay the payments to any suppliers or vendors as the case maybe The Account Receivable Turnover Ratio and days sales outstanding of HBC at the average of 2018 is 1.79 and 203.49 respectively, it means that the company collects the receivables about 1.79 times a year or once every 203 days In other words, when HBC makes a credit sale, it will take the company 203 days to collect the cash from that sale Item 2015 2016 2017 2018 Net sales (1) 5,078,027,249,288 10,766,205,824,099 16,037,264,026,609 18,201,392,136,460 Average Account Receivable (2) 4,212,399,847,452 5,493,455,146,390 7,982,600,863,350 10,147,610,601,259 Appendix 4: Days sales outstanding of HBC, CTD and PHC HBC Net sales 2015 2016 2017 2018 5,078,027,249,288 10,766,205,824,099 16,037,264,026,609 18,201,392,136,460 Average Account Receivable AR Turnover Ratio Day sales outstanding 4,212,399,847,452 1.21 303 5,493,455,146,390 1.96 186 2015 13,668,916,257,891 2016 20,782,721,033,541 2,369,033,753,865 3,046,140,103,818 4,913,671,187,241 7,698,802,177,005 63 53 66 98 Coteccons Net sales Account Receivable AR Turnover Ratio Day sales outstanding Phuc Hung Net sales Account Receivable AR Turnover Ratio 7,982,600,863,350 10,147,610,601,259 2.01 1.79 182 203 2017 2018 27,153,453,093,560 28,560,857,297,395 2015 1,219,925,093,141 2016 1,469,042,576,339 2017 2018 2,111,459,737,983 3,115,133,358,916 213,927,462,797 233,746,991,266 327,475,170,143 757,850,071,084 6 Day sales outstanding 57 Appendix 5: Transcript summary 64 58 1/ A focus group with people in Contract Department of HBC Ms Hoan: My name is Nguyen Thi Hoan and I‟m Deputy Director of 57 89 Deputy Director of Department Department Ms Anh: My name is Nguyen Thi Van Anh - Contract Executive Contract Executive Ms Ngoc: My name is Tran Hong Ngoc - Contract Executive Contract Executive Mr Tung: My name is Tran Pham Hoang Tung - Contract Executive Contract Executive Ms Tran: My name is Tran Gia Bao Tran - Contract Executive Contract Executive Ms Quyen: My name is Tran Thuc Quyen - Contract Executive Contract Executive Ms Lien: My name is Do Thi Lien - Document Control Executive Document Control Executive Mr Linh: My name is Nguyen Thi Ngoc Linh - Accountant Executive Accountant Executive Mr Tuyen: My name is Huynh Thanh Tuyen – HR Executive HR Executive Q1: How long have you worked at DAB? Ms Hoan: 09 years, Ms Anh: 04 years, Ms Ngoc: 01 year, Mr Tung: Job position Employees‟ tenure months Ms Tran: 01 year, Ms Quyen: 02 years, Ms Lien: 10 years Interviewer: Hello everyone, thanks for joining today in the short interview It will not take you very long since it is the end of the day It has been a problem that we could see on a lot of newspaper nowadays that the high account receivable of HBC is tremendous over years Can you 58 give me any of your opinions about that? Ms Linh: Yeah, I will talk about it first since it is a problem mainly related to the figures From what has been recorded in book and could be seen in financial reports I could say that there are 02 main reasons HBC Typical accountant according suffered from high AR and high DSO is that the company used an typical to accounting law of Vietnam accountant according to accounting law of Vietnam, when the progress of Delay payments from Owners/ the construction project hit the specific miles stone such as 70% of total Developers progress, even the invoice has not been released, the account receivable has also been recorded and the second reason is delay payments from Owners/ Developers from the very first projects until now I could give you short information later about list of big projects are being delay in payment Ms Hoan: I also think so too, that the delay payments of Owners/Developers – these are people who spent money on investing construction projects are contributing to the date of collecting cash of HBC In contracts, the date of Interviewer: So you think which factors may affect the reason? payment is very long Ms Van Anh: I think because in these contracts that Ms Linh will give The date of submission the you later, the date of payment is very long (> 45 days) at least Ms payment documents is always Lien: For me, I think that the date of submission the payment very late 59 documents is always very late Ms Hoan: I think that these answers of Ms Van Anh and Ms Lien shall be re-checked with the signed contracts to find all of the provisions that affect the payment time and with Ms Linh to find out all of the submission date is late or not For me I also takes some notes from the Risks may come from the other external factors, even though everyone did the perfect jobs according to side of the Contract the contract, risks may come from the other side of the Contract Owners/Developers Potential Problem 1: Owners/Developers are the one who developing the Project, and there are The possible plenty of reasons that may affect to their cash flow as may lead to inefficient the shortage of finance to afford for the Contractor (i) Project suspended project by competence authority, (ii) Lack of financial source or even the coordination subjective factor (iii) the willing of the Owners/Developers to pay between Interviewer: As you said, late submission of payment documents are people seen as the big problem, you think which maybe the biggest working at obstruction you are facing that may affect the reason? Site and in Ms Quyen: For me is the inefficient project coordination between back office people working at Site and in back office This question is also raised to the other members of the department Potential and received the consent by all Problem 2: Interviewer: As I see from your information, you all seem very new to Little time working in the Lack of longtime working the job here and has lack of years working here, you think that company because of that, you may get unfavorable contract provision when The knowledge in the negotiating and leading to late payment of those contracts? construction industry Ms Hoan: I think this shall be a problem that most of them has little time is limited employees working in the company and almost everyone graduated from Economy – Law school and majors in Law, therefore, the knowledge in the Potential construction industry is limited However, Ms Tuyen will provide you Problem 3: sufficient data later about our department profile to have an adequate look Interviewer: Hi Ms Hoan so you are the Deputy Manager of the Everyone here likes to work department, I‟m sorry to ask that whether any Chief Manager here? So if dependently, and they are free there is none, can you tell me about the difficulty being the Deputy one, to express what they want Lack of coordination within the department may be in connection between the people in the department? Ms Hoan: Year, I have just been promoted over years ago Everyone here likes to work dependently, and they are free to express what they want Interviewer Ok thank you Ms Hoan I guess it is late now Time for you all to go thank you very much 61 2/ An in-depth interview with Mr Tan – General Director of the Supply Division Interviewer: Hello, Mr Tan I‟m very honor to be here interviewing a little about the Contract Department that you are managing I will go very straight to the point here I have a prior focus group interview with the members in the department earlier and finding the out the reason of high AR over years There are many potential problems has been listed and I have been intensively going through the literature review Here are some problems I think that need your confirmation, the results finding is that the coordination between the Site and the back office may affect to the overall high of AR as it creases that time of payment documents submission and leading to the delay in payment of customers? What about your opinion? Mr Tan: There are many factors that affect to the late submission of the Contractor always have payment documents Even though the time stipulated in the provision to difficult time submitting ensure the conformation of the parties in contract to the obligations, their invoice on time Contractor always have difficult time submitting their invoice on time As a contractor, it is always subject to the Owner/ Developer‟s approval on As a contractor, it is always To validate the monthly working volume, on the calculation table, on the invoice It subject to the Owner/ the Potential can take very long and nothing the Quality Surveyor working at Site or a Developer‟s approval Problem Contract Executive of HBC can control Moreover, HBC has built an extremely expensive and elaborate system that worth billions VND People working at Site are being practiced and trained everyday, therefore, HBC has built an this system is proved to augment the coordination between these people extremely expensive and both in quality and time elaborate system Interviewer: Thank you, so how you think about the lack of long time working employees in our department has anything to with it? I have this data from Mr Tuyen – HR Executive Mr Tan: In HBC, we have an intensive recruitment process, people working here they all are not freshman They have experience and having worked for the construction industry over years Not to mention, the interview test is difficult and very competitive They have to spend first test about the English and IQ Next the candidate has to answer ten different types of questions related to in construction industry that requires an experienced executive to answer, there are translation and questions To validate Intensive recruitment process Though working separately and dependently, are the ones the Potential Problem who are pretty solid at their job about the FIDIC book too People here though working separately and dependently, are the ones who are pretty solid at their job Interviewer: Hmm, so it may not be the problem we are looking for However, I have to be honest with you that the day I conducted a focus group, I can feel the hesitation from the look of other interviewees When people are sitting next to Ms Hoan, they are shy to express what they are feeling The interview had been going on a very tense atmosphere You think that maybe a problem? Mr Tan: Take a look at this 30 years anniversary book of HBC – which just 03 years ago, half of the people working in Contract Department is leaving People leaving because they find a new home When Ms Hoan is promoted to the Deputy General Manager at the age of 28, there are lots of thing going through the departments She is younger than most of them, except for one people at that stage She has been doing a fantastic job Even though graduated from Law, she equipped herself very solidly about the knowledge in construction field But at new role now, she encounters lots of resistance: from the older people in the department, they used to go straight to my room for signature but now they have to get the Deputy‟s signature prior consent, they have to carbon copy all of the emails to Ms Hoan – that‟s what they are not used to, and in other aspects, when they She has been doing a fantastic job But at new role now, she encounters lots of resistance: from the older people in the To validate the Potential Problem department are absent or leaving or going late, all have to get acquainted with the new situation The atmosphere is very stressful, and people seem to hesitate to The atmosphere is very express themselves and share more, leading to everyone working stressful, and people seem to dependently and overlooked all of the others favorable contract provisions hesitate to express themselves that has been successfully negotiated by the others in the department, not to mention that due to confidential, to release a single contract for reference, they have to get through Ms Hoan, which they not want to do, and increases the lack of coordination among the Contract Department Overlooked all of the others favorable contract provisions even more that has been successfully Interviewer: Ok I see, I will combine all of the information gathered negotiated by the others in the Thank you so much for your help department 3/ A second focus group with people in Contract Department of HBC Interviewer: Hello everyone, thanks for joining today again in the short To validate interview There were some discussion last time about the lack of the Potential corporation problem which you all agreed as the main problem of your Cause department now So you think it may happen because of working overload? Ms Van Anh: Yeah, we have been constantly winning many packages in Southern of Vietnam in the last months So we are spending most of time on it Our work-load is heavy and even though we are not used to working overtime, we have to work really and extra hard during the working time Mr Tran: I agree, I have been constantly busy in many meetings recently 65 and not have time for anything else Ms Hoan: I disagree I think that the only three ways to know if the The working load is quite people is overloaded by the job: stable and average, people who The Main contract they are handling are too much more in the Main Contract The Sub-contract they are handling are too much usually The Main and sub-contract they are handling are too much Subcontract, I‟m the one who takes control of assigning the job and control their work-load is less in the therefore, the seen to be performance and make any corrections if needed, except for some balanced between people in the veterans who have been here for so long department The working load is quite stable and average, people who more in the Thanks to the elaborated ISO Main Contract usually less in the Subcontract, therefore, the work-load System I have the authority to is seen to be balanced between people in the department Also, thanks to review all of the working time the elaborated ISO System I have the authority to review all of the There are lack of overtime working time of all people in the department, she confirms that there are working also lack of overtime working also So I think with that reference, this is not the main cause of the problem leading to the lack of coordination problem To validate Interviewer: Ok, I see thanks for your sharing, so it is not coming from the Potential the working load, it may come from your lack of communication with Cause each other, because I know there are several of researchers have found a link between the lack of communication leads to lack of coordination? 6 Ms Hoan: I think that our feeling towards each other is good, there is no Our feeling towards each other hate or dislike among them However, due to our strong personality, the is good, there is no hate or communication and the solidarity are not very strong dislike among them However, Ms Van Anh: Yeah, I agree There are still some vacations within the due to our strong personality, Department every year and a lot of party has been created during the the communication and the working time or after work and our communication through the journey or solidarity are not very strong commitment to the party is also fine Even though we have separate groups like Ms Lien and other departments, Ms Quyen & Ms Ngoc, Mr Such different groups among Tung & Ms Hoan , that means people in our Department join different the department specific groups to share about everything, like private groups of social incoherent may cause relationship, but media group, I not want to join or involve or get close to the others overall, I think they are still Such different groups among the department may cause incoherent having fun together relationship, but overall, I think they are still having fun together as Ms To validate Hoan said the Potential Interviewer: Thank you Ms Van Anh and Ms Hoan So we are still not Cause finding a cause now May I ask deeper into this, so Ms Hoan how is your department interaction during the work? Do they share or help each other? Or their work have anything in common? Still struggle to find solutions which can balance people in Ms Hoan: – I think that when people are assigning too much of the Main the department which Contract work, they not look up and get what has been changed to the encourage them to interact Subcontract procedure For other young and lack of experience newcomer, together, leading to share of they have to the Subcontracts time over time to gain experience We knowledge, information and are still struggle to find solutions which can balance people in the experience department which encourage them to interact together, leading to share of The assignees from the date of knowledge, information and experience Such solutions in the past is assignment, continue what they initiated by assigning mixed between them, but the assignees from the have to before, doing it all date of assignment, continue what they have to before, doing it all alone without any reference of alone without any reference of much of interaction with people who has much of done something similarly or such type of contracts before, that leads to the people interaction who has with done unfavorable clauses it may had during the contract negotiation stage On something similarly or the other hands, due to long time working with suppliers or type of contracts before, that subcontractors, people like Ms Quyen – who is dominating in doing the leads Subcontracts, may find it difficulty when working with such suppliers or clauses it may had during the subcontractors again if Ms Van Anh or Ms.Tran gives a consent to any contract negotiation stage to the such unfavorable clauses or conditions in the Subcontract which Ms Quyen has contrary idea against Interviewer: Thank you Ms Hoan so much It is late now You all can go by now Your cooperation is highly appreciated I will collect your information, together with Mr Tan finding solutions for this Thank you 4) A second in-depth interview with Mr Tan - Contract Director of 68 HBC Interviewer: Thank you Mr Tan for spending time for us We will go very fast as you are very busy now it seems So as we said about the lack of coordination problem few days ago, I have conducted another interview with other members of the Contract Department Questions were raised and discussion has been made There were lots of causes have been given such as working overload, poor communication and lack of interaction within the people in the departments? So you think it may be the main cause of the picture? Mr Tan: Actually, I‟m very busy now, but I would give it a try I not think working overload is a problem – he told so by giving the interviewer information which enclosed in Appendix We have not been well succeeded in first and second half of 2019 But I will not discuss about this because Ms Hoan is taking responsibility for assigning the job to all people within the department, her answer is surely more accurate than mine For the communication problem I not think it is the main cause now It‟s not poor, they are still communicating with each other very well, but when it comes to the work, there were still something missing and lacking in and between them, but it is not poor communication I agree that they are lacking of interaction during the work, we have mixed their We have not been well succeeded in first and second half of 2019 They are still communicating with each other very well, but when it comes to the To validate all of the Potential Causes work, there were still something missing and lacking in and between them They are still lacking of coordination, lacking of spending time discussion in work and going to give a job rotation, but it is going the exact way that we work, or lacking of practice want to They are still lacking of coordination, lacking of spending time or sharing information discussion in work, or lacking of practice or sharing information This is difficult and is an on going problem here Interviewer: Lack of interaction means that they may not the job done well by themselves Or lack of training maybe? Propose ideas Mr Tan: Hmm, no The solution that I want is to educate and enhance the for alternative knowledge of the members in the Department, but in no way forming a solutions solution of a training problem, they are very intelligent and talent person, the solutions proposed to increase the interaction in working between people within the Departments It may be come from the consistent content of all information they receive, maybe starting from orientation phase to an execution stage where an united specimen or data base have been formed They need to work together, Ms Hoan in the first and second quarter of 2019 has organized 03 of the internal knowledge sharing classes, with the class usually occurs in the Saturday with the following contents: Changes in FIDIC Redbook 1999, 2017 Introduce and discuss about FIDIC Yellow Book 1999 (D&B Contract) 70 Introduce and discuss about Insurance in Construction Contract But what I want to they have to it too, not always by Ms Hoan They have to it together to gain specific information internal first, before going out to external via a new built E-learning system of the Company Through out their cooperation, an alliance will be forming between them and leading to support their work coordination with all of people coming from the outside of the Department I‟m so sorry, I‟m leaving now See you next time Interviewer: Thank you so much for spending time with me The solutions will be proposed and will be sent to you later Action plan also will be made in case one of the solutions are chosen Goodbye 71 ... the organization, the lack of information can create a cascading effect that will damage the organization Lack of coordination creates gaps in the acquisition and distribution of information This... Validating 1: Inefficient project coordination at Site and in back office 15 3.2.2 Problem Validating 2: Lack of long-time working employees 17 3.2.3 Problem Validating 3: Lack of coordination. ..UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business Tran Minh Tam LACK OF COORDINATION AT HBC’S CONTRACT DEPARTMENT MASTER OF BUSINESS (HONOURS) SUPERVISOR: Professor