INDUSTRY REVIEW

7/7/2022
PROJECT
(CONSTRUCTION)

21111546
21111559
1. INDUSTRY PROFILE (CONSTRUCTION)

Company’s bid documents and its general communications material,

such as corporate brochures, websites and annual reports. In addition
to basic information such as physical location and year of
establishment, an effective construction company profile should
include information that explains the type of work the company
handles, its capabilities and resources and financial stability. The
profile should be about 300 to 400 words .

 Company Introduction and Overview

State the number of years in business and say whether it is a family-owned
business, private company or public corporation. Indicate the size of the company
in terms of turnover and number of employees. Give the location of the company
headquarters and geographical areas of work.

List the categories of work that the company undertakes. Categories include
private and public housing; factories, offices and retail units; schools, hospitals
and public buildings; civil engineering and infrastructure projects. State whether
the company handles refurbishment in addition to new projects .

 Company Description and Experience

Describe the size, skills and experience of the company’s workforce. Provide
details of the company’s apprenticeship, training and development programs and
its participation in industry training programs. List any achievement awards such
as the recognition programs run by the Associated General Contractors of
America that cover training, safety, environmental sensitivity and other important
industry issues.

 Company Recognitions and Accreditations

List the company’s industry accreditations, guarantee schemes and quality
policies. Provide independent recognition of the company’s performance
standards by quoting industry accreditations, such as membership of the National
Home Builders Association or compliance with the National Green Building
Standard or the Occupational Safety and Health Administration. Build customer
confidence by describing quality policies in line with the recommendations of a
body such as the International Organization for Standardization.

 Company History and Awards

Describe major projects that the company has delivered. Write case studies
describing the objectives, challenges and achievements of the projects. Show how
the project met its time and budget targets and highlight any specific features of
the project. Include the names of architects, consulting engineers and any other
professional services firms involved in the project.

Add details of any awards relating to the projects. Ask project clients to provide
references or recommendations.

 Management Structure and Biographies

Outline the company’s management structure to demonstrate competence and
control. Include biographies of key management team members with details of
construction industry experience. Provide a financial statement showing revenue
and profit over recent period.
1.4

GOVERNEMNT REGULATIONS AND POLICIES

What are the different types of laws regulating

construction companies?
To start and manage a construction company some several factors
should be kept in mind. Construction companies deal with various
projects, big or small, they all require a method of regulation and
management. Further, the construction industry in India depends
highly on the legal system to get the work done which includes
contracts, incorporation, taxation, etc. Additionally, the important
laws that control and regulate the working of construction companies
in India, namely – 

(i) The Companies Act, 2013

This mainly includes the incorporation of a company, management,
and regulation. Click on the drop-down menu to see the process of
registering a construction company in India. (Add here – mention
dropdown)

Before starting a construction business, a formation of a company

with the relevant objects, names, documents, etc. is necessary.
Further, a Company in India is incorporated/registered under the
provisions provided in the Companies Act, 2013. In the instant case, a
construction company can also be registered in the same way.

Before proceeding to register a construction company, a few aspects

have to be considered which are – 
 Type of Company
Under the Companies Act, only two types of companies can be
registered viz. (i) Private Companies (ii) Public Companies. 

A construction company can be both private and public. When

starting a construction business one can consider any of the above.

Similarly, commonly, most construction companies are private

because of the ease of management and registration process. Some
examples of private companies operating in India are Larsen &
Toubro Ltd. (L&T), Reliance Industries Ltd., Shapoorji Pallonji
Group, etc. 

Reservation of Name
All construction companies are associated with a name. The companies act
suggests that a company before registration has to propose six names in order of
preference so that at least one of them will be approved as the name of the
company. Further, this proposal is to be made to the Registrar, Central
Registration Centre. According to the incorporation rules, the name can also be
reserved online. Further, after approval, the registrar can reserve the name for
20 days.

Forming the Object

Every company has to form a document called a ‘Memorandum of Association’
which consists of the objects and the possible scope of its operations. A
company cannot go beyond the scopes and objects provided in the document. In
the case of a construction company, the scope and object in the memorandum
can be conducting construction activities and carrying out construction business
in India. 

Preparing other documents

For the registration of a construction company, several documents are required
to facilitate the registration process, which includes identity proofs such as Pan
Card, Aadhar Card, Address proofs such as rental agreements in case of a rented
property, electricity bill of the office, and contact information such as email ID,
mobile number. 

Other formalities including the power of attorney to any professional such as a

Chartered Accountant, Advocate, Company Secretary. The list of directors
should also be formed prior to the registration. 

Filing of Application
After finishing all the above formalities and having the relevant documents, the
next step is to file these documents with the Registrar within whose jurisdiction
is the construction company going to be operating. 

Certificate of Application
After scrutinizing the documents and all the required legal formalities, payment
of fees are complete the registrar shall enter the name of the company in the
register of companies and certify its incorporation. After that, the registrar will
then issue a certificate under his signature. The registrar will also provide a CIN
or Corporate Identity Number which will be the unique identity of the
company.  

(ii) The Indian Contract Act, 1872

All contracts will enforce and regulate under the Indian Contract Act, 1872. A
construction company binds itself into several contracts when it takes up a
project. This contract can be between two construction companies, a state
government or central government, or a buyer. The various types of contracts in
the construction industry will be discussed further. 

(iii) The Goods and Service Tax Act, 2017

All construction projects come under taxation norms. The Goods and Service
Tax, 2017 has issued fresh guidelines and rates for the regulation of
construction contracts and projects. 

(iv) Obtaining specific clearances and certificates (NOCs)

from the Ministry of Environment and Forests
Environmental clearances are very important for a construction project before
the project commences. This environmental clearance (EC) is obtained from the
Ministry of Environment Projects. Any project which is greater than or equal to
20,000 sq. metres requires environmental clearance. Further, any township or
area developing project covering more than 50 hectares needs clearance.

If the project is less than 20,000 sq. meters or 50 hectares as the case may be,
then the EC will not require but the NOC/approval of the State Pollution
Control Board, Local Municipal Committee/Panchayat, Approval of Fire Safety
department, if applicable approval of the aviation department and if it is a forest
area then the approval of the regional office of the Ministry of Environment and
Forest will require.

What are the different types of Construction Contracts?

When a construction project starts, many legal formalities and dealings will take
prior to the project. These include contractual relationships between parties.
Additionally, the employer and the contractor form a construction contract
before the project initiation. A construction contract is also a ‘work contract’ is
one where an employer and a contractor form a contractual relationship for the
construction of assets.

In India, there is no standard form of the construction contract. There are,

however, some commonly used contracts that are published by the International
Federation of Consulting Engineers, Institute of Civil Engineers, and the model
published by the Indian Institute of Architects. Some different types of contracts
commonly found in the construction industry are – 

(i) Engineering, Procurement and Construction Contracts

(EPCs)
The most likeable form of contracts in the construction industry is the EPC form
of contracts. Similarly, it creates a binding relationship between the contractor
and the employer, where the employer transfers the risk of the construction and
a basic design all in the hands of the contractor. Additionally, this creates
efficiency in work and risk management which makes it the ideal choice of
contractors and business owners. Further, it is the most common form of the
contract in the construction industry. 

(ii) Turn-key Contracts

This model will also adopt frequently in the construction sector. Here, the
employer hires a contractor to plan, design, and build an infrastructure project
before a specific date. The contractors have to just “turn a key” to get the work
complete. Further, this is advantageous because the completion process of the
project is swift and fast. Additionally, it is seen frequently in large scale
projects.  

(iii) Public-Private Partnership Contracts (PPP)

This is where the government or a statutory entity or an entity owned by the
government enters into a contractual relationship with a private entity. It
includes risk-sharing to the private sector, it benefits the public sector with more
technical expertise, experience, and efficiency of the private sector. There are
several types of PPP Contracts are namely, – 

 Build-Operate-Transfer (BOT) where the private entity is responsible

for the financing, construction, and operations before personality will
transfer to the government. It is the most common type of PPP
contract 
  Build-Own-Operate-Transfer (BOOT)  the private partner completes
the construction project for which concession grants. The public
partner assists by giving tax exemptions and funding. 
 Additionally, Build-Transfer-Operate (BTO) The private partner will
permit to operate the facility for a specific time after the built
infrastructure that transfers to the state. 
 Further, Build-Own-Operate (BOO) where the asset ownership is with
the private sector. Moreover, the private partner also builds, designs,
owns, operates, and maintains the asset.

What kind of taxation laws are applied to a Construction

Company?
Under the Goods and Service Tax Act, 2017 the contracts in
construction projects are “work contracts”. Additionally, according to
that, work contracts mean a contract for the building, construction,
erection installation, fitting out, fabrication, etc. of immovable
property only. Furthermore, according to this act work contracts are
classified as a supply of service. 

Accordingly, the rates of GST are decided as given under – 

 Rate of
Type of Property 
GST 

Construction of a complex, building, civil structure or a part thereof, including

a complex or building intended for sale to a buyer, wholly or partly, except
where the entire consideration has been received after issuance of the
9%+9% 
completion certificate, where required, by the competent authority or after its
first occupation, whichever is earlier. (Provisions of paragraph 2 of this
notification shall apply for valuation of this service) 

composite supply of works contract as defined in clause 119 of section 2 of

9%+9%
Central Goods and Services Tax Act, 2017

Composite supply of works contract as defined in clause (119) of section 2 of

the Central Goods and Services Tax Act, 2017, supplied to the Government, a
local authority or a governmental authority by way of construction, erection,
commissioning, installation, completion, fitting out, repair, maintenance,
renovation, or alteration of, – (a) a historical monument, archaeological site or
6%+6%
remains of national importance, archaeological excavation, or antiquity
specified under the Ancient Monuments and Archaeological Sites and
Remains Act, 1958 (24 of 1958); (b) canal, dam or other irrigation works; (c)
pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii)
sewerage treatment or disposal

Composite supply of works contract as defined in clause (119) of section 2 of

the Central Goods and Services Tax Act, 2017, supplied by way of
construction, erection, commissioning, installation, completion, fitting out,
repair, maintenance, renovation, or alteration of,- (a) a road, bridge, tunnel, or
terminal for road transportation for use by general public; (b) a civil structure
or any other original works pertaining to a scheme under Jawaharlal Nehru
National Urban Renewal Mission or Rajiv Awaas Yojana; (c) a civil structure
or any other original works pertaining to the “In-situ rehabilitation of existing
slum dwellers using land as a resource through private participation” under the
Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for
existing slum dwellers; (d) a civil structure or any other original works
pertaining to the “Beneficiary led individual house construction /
enhancement” under the Housing for All (Urban) Mission/Pradhan Mantri
Awas Yojana; (e) a pollution control or effluent treatment plant, except
located as a part of a factory; or (f) a structure meant for funeral, burial or
cremation of deceased

Conclusion
In this day and age, starting a construction company is not an easy task. It
includes several legal aspects that cannot overlook. Moreover, a lot of steps in
making a construction company is easier with proper consultation and
assistance. Similarly, registering a construction company with infrastructure at a
specific location helps develop a separate identity for the company and
facilitates its success. Additionally, contractual agreements for projects help
safeguard the interests of the company and protect them from further liabilities.
Hence, a dedicated legal consultation and assistance are helpful in all these
aspects. 

1.5

POTER’S FIVE FACTORS

What Are Porter's Five Forces?

Porter's Five Forces is a model that identifies and analyzes five
competitive forces that shape every industry and helps determine an
industry's weaknesses and strengths. Five Forces analysis is frequently
used to identify an industry's structure to determine corporate strategy.
Porter's model can be applied to any segment of the economy to
understand the level of competition within the industry and enhance a
company's long-term profitability. The Five Forces model is named after
Harvard Business School professor, Michael E. Porter.

KEY TAKEAWAYS

 Porter's Five Forces is a framework for analyzing a company's

competitive environment.
 The number and power of a company's competitive rivals, potential
new market entrants, suppliers, customers, and substitute products
influence a company's profitability.
 Five Forces analysis can be used to guide business strategy to
increase competitive advantage.

Understanding Porter's Five Forces

Porter's Five Forces is a business analysis model that helps to explain why
various industries are able to sustain different levels of profitability. The
model was published in Michael E. Porter's book, "Competitive Strategy:
Techniques for Analyzing Industries and Competitors" in 1980. 1  The Five
Forces model is widely used to analyze the industry structure of a
company as well as its corporate strategy. Porter identified five undeniable
forces that play a part in shaping every market and industry in the
world, with some caveats. The five forces are frequently used to measure
competition intensity, attractiveness, and profitability of an industry or
market.

Porter's five forces are:

1. Competition in the industry

2. Potential of new entrants into the industry

3. Power of suppliers

4. Power of customers

5. Threat of substitute products1

Competition in the Industry
The first of the five forces refers to the number of competitors and their
ability to undercut a company. The larger the number of competitors, along
with the number of equivalent products and services they offer, the lesser
the power of a company. Suppliers and buyers seek out a
company's competition if they are able to offer a better deal or lower
prices. Conversely, when competitive rivalry is low, a company has greater
power to charge higher prices and set the terms of deals to achieve higher
sales and profits.

Potential of New Entrants Into an Industry

A company's power is also affected by the force of new entrants into its
market. The less time and money it costs for a competitor to enter a
company's market and be an effective competitor, the more an established
company's position could be significantly weakened. An industry with
strong barriers to entry is ideal for existing companies within that industry
since the company would be able to charge higher prices and negotiate
better terms.

Power of Suppliers
The next factor in the five forces model addresses how
easily suppliers can drive up the cost of inputs. It is affected by the number
of suppliers of key inputs of a good or service, how unique these inputs
are, and how much it would cost a company to switch to another supplier.
The fewer suppliers to an industry, the more a company would depend on
a supplier. As a result, the supplier has more power and can drive up input
costs and push for other advantages in trade. On the other hand, when
there are many suppliers or low switching costs between rival suppliers, a
company can keep its input costs lower and enhance its profits.

Power of Customers
The ability that customers have to drive prices lower or their level of power
is one of the five forces. It is affected by how many buyers or customers a
company has, how significant each customer is, and how much it would
cost a company to find new customers or markets for its output. A smaller
and more powerful client base means that each customer has more power
to negotiate for lower prices and better deals. A company that has many,
smaller, independent customers will have an easier time charging higher
prices to increase profitability.

 
The Five Forces model can help businesses boost profits, but they must
continuously monitor any changes in the five forces and adjust their
business strategy.

Threat of Substitutes
The last of the five forces focuses on substitutes. Substitute goods or
services that can be used in place of a company's products or services
pose a threat. Companies that produce goods or services for which there
are no close substitutes will have more power to increase prices and lock
in favorable terms. When close substitutes are available, customers will
have the option to forgo buying a company's product, and a company's
power can be weakened.

Understanding Porter's Five Forces and how they apply to an industry, can
enable a company to adjust its business strategy to better use its
resources to generate higher earnings for its investors.

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What is it?
Framework/theory
Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E
Porter of Harvard Business School as a simple framework for assessing and evaluating the
competitive strength and position of a business organisation.

This theory is based on the concept that there are five forces that determine the competitive
intensity and attractiveness of a market. Porter’s five forces help to identify where power lies in a
business situation. This is useful both in understanding the strength of an organisation’s current
competitive position, and the strength of a position that an organisation may look to move into.

Strategic analysts often use Porter’s five forces to understand whether new products or services
are potentially profitable. By understanding where power lies, the theory can also be used to
identify areas of strength, to improve weaknesses and to avoid mistakes.

Porter’s five forces of competitive position analysis:

The five forces are:

1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven
by the: number of suppliers of each essential input; uniqueness of their product or service;
relative size and strength of the supplier; and cost of switching from one supplier to another.

2. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven
by the: number of buyers in the market; importance of each individual buyer to the organisation;
and cost to the buyer of switching from one supplier to another. If a business has just a few
powerful buyers, they are often able to dictate terms.
3. Competitive rivalry. The main driver is the number and capability of competitors in the market.
Many competitors, offering undifferentiated products and services, will reduce market
attractiveness.

4. Threat of substitution. Where close substitute products exist in a market, it increases the

likelihood of customers switching to alternatives in response to price increases. This reduces
both the power of suppliers and the attractiveness of the market.

5. Threat of new entry. Profitable markets attract new entrants, which erodes profitability. Unless
incumbents have strong and durable barriers to entry, for example, patents, economies of scale,
capital requirements or government policies, then profitability will decline to a competitive rate.

Arguably, regulation, taxation and trade policies make government a sixth force for many
industries.

What benefits does Porter’s Five Forces analysis provide?

Five forces analysis helps organisations to understand the factors affecting profitability in a
specific industry, and can help to inform decisions relating to: whether to enter a specific
industry; whether to increase capacity in a specific industry; and developing competitive
strategies.

Actions to take / Dos Actions to Avoid / Don'ts

 Use this model where there are at  Avoid using the model for an
least three competitors in the individual firm; it is designed
market for use on an industry basis
 Consider the impact that
government has or may have on
the industry
 Consider the industry lifecycle
stage – earlier stages will be more
turbulent
 Consider the dynamic/changing
characteristics of the industry

  In practice:  
Porter's Five Forces of Competitive Position Analysis
 Analysis of the Indian business environment

Download full case study

In the June 2010 issue of Financial Management magazine, the Five Forces
model was applied to the emerging Indian business environment in comparison
with more developed markets. The analysis found that factors such as state
protectionism and a lack of infrastructure are greater barriers to entry in India
than they are in more developed nations, where market forces are more
powerful.

The analysis highlighted many issues affecting competition in emerging

economies and compared them to those that are more prevalent in more
developed markets.

One factor that could play a crucial role in India is public opinion, which exerts a
considerable influence on the government. A good example of this is a campaign
by local retailers against Walmart, who feel that the arrival of the US retail giant
could put them out of business. Walmart has made huge investments in India,
but is having to find ways around stringent regulations that prevent it from doing
things as basic as putting its brand name on stores.