Cultural differences a challenge

THE growing internationalisation of Western Australia’s resources sector is creating a range of major new challenges for local services companies as they deal with an ever more exotic client base.

Engineering and construction contractor VDM Group last month caused a stir when it launched legal action to recover fees owed by its Chinese client, MCC, for work at the $5.2 billion Sino Iron magnetite project in the Pilbara.

Though VDM has since been paid what was owed, similar issues have affected a number of sub-contractors at the project in recent months.

VDM executive director Jim van der Meer told the WA Business News forum the now-resolved dispute demonstrated the cultural gulf between local contractors and newly arrived resources investors from places such as China.

Mr van der Meer said the dispute largely flowed from the massive increase in costs at Sino Iron, now over $1 billion, and MCC’s initial unwillingness to accept that sub-contractors were generally entitled to negotiate variations where such unavoidable increases occurred.

A rise in the number of such disputes appeared inevitable unless local contractors and their new international clients could overcome their cultural differences, he said.

“Something’s got to give,” Mr van der Meer said. “We’ve either got to learn the way they do business and price accordingly, or they’ve got to learn that they are in Australia and have to do business our way.”

Peter Hutchinson, managing director of Forge Group which also works with Asian and African clients, said many new international clients did not recognise that variations were absolutely crucial for contractors to remain viable in a climate of rapidly increasing costs.

“The concept of variations, as a contractor, we rely on sometimes to make money,” Mr Hutchinson said. “If you can’t rely on a variation, or scope change, then you are in trouble. And I think culturally, either they don’t want to understand that concept or they’ve got their blinkers on.”