The 1990s were boom years for the construction industry in Asia. On the back of the Asian economic miracle, construction contractors, mostly large European and Japanese companies, saw no end to new work, and the Asia-based partners of the big law firms rubbed their hands together as the influx of both contentious and non-contentious work saw legal fees sourced from their construction practices mushroom.

But even as new building contracts were awarded in Hong Kong and dreams took the shape of steel, concrete and glass buildings that rose to the skies, just around the corner was the financial crisis that would bring these dreams crashing back to earth.
Since then, the construction market in Hong Kong has been somewhat lacklustre, at least compared with the heady days of the 1990s that lawyers still remember. Most firms have refocused their priorities, pursuing growth in the new millennium's more lucrative practice areas - high-end corporate work like M&A, IP and capital markets.

"I think in Hong Kong there is no question that the market has clearly slowed and slipped back," says Ashley Howlett, head of Jones Day's Greater China construction practice.

One result has been that the amount of work being won by the traditional large contractors has decreased dramatically. After the market turned downward, many of these contractors reduced their business and returned home. Claims consultants (often the cheaper frontline in disputes before lawyers are consulted) have also felt the pinch, with many having shut down, or merged or been acquired.

A significant number of construction and engineering contractors has moved to Middle East countries such as the UAE, where the margins are thought to be higher, says John Bishop, the senior resident partner in Masons' Hong Kong office. "A lot of the people who now live in Dubai used to be based here in Hong Kong," Bishop adds.

This has made room for local contractors, in what has been the biggest trend in the Hong Kong market of late. Now, Hong Kong's indigenous contractors, or the local branches of Chinese contractors, dominate the market. They also have a different approach to working with law firms. With bigger contractors, Masons would normally advise on any developments throughout an entire project, but Chinese firms tend to utilise law firms much later, after the problem or issue is already imminent or past, says Bishop.

"They tend to use firms more on a one-off basis. If they have a particular problem, they ask what they should do, and go away again," adds Bishop.

The new promised lands
Though the construction market has slowed, for those firms still involved the opportunities are there, though the majority are no longer in Hong Kong.

"The industry as a whole is doing better than it was two years ago, but it is not primarily doing so in Hong Kong - but in Macau," says Sam Farrands, Minter Ellison's managing partner. "Macau has soaked up a lot of the Hong Kong construction industry."

The Macau construction boom has been driven by an influx of Mainland Chinese tourists visiting the growing number of casinos in the region. Based on the data of the private sector and the government, total investment in construction in Macau expanded 72.5% in the second quarter of 2006. Though apparently indicating a substantial increase, this figure was lower than the 94.9% growth experienced in the first quarter.

If any firm has a bird's eye view of this trend, it is Minters. The firm recently helped bring the Las Vegas Sands Corporation into Macau. The company built the now extremely popular casino the Sands Macau. A slew of casinos are following in its wake, the most recent of which is the newly opened Wynn Macau. However, there are doubts over the long-term prospects of the casino boom.

"A number of firms in Hong Kong have been active in Macau, but I see that as a finite proposition," Howlett says. "It has been a lot of non-contentious front-end work, and once the casinos are all up and open it will drop off. It is not an area that you can base a long-term construction practice on." Howlett puts a three to four year time-frame on the current boom, after which firms will have to look elsewhere.

At the moment, most firms focused on construction are looking to Mainland China. Masons probably has the strongest practice in the region, while the likes of Jones Day, Lovells, Mallesons and Minters have all developed Mainland construction practices.

In making the transition from Hong Kong-focused to Mainland construction practices, Hong Kong firms face difficulties. As most construction lawyers in Hong Kong are of Western background, with little interest in moving to Shanghai or Beijing on the Mainland, firms have to try to bridge this gap to avoid doing things remotely. What they require are qualified Chinese construction lawyers on the ground.

Finding this native talent is a difficult task. Training lawyers up in Hong Kong and sending them to offices in China is one option, but the pool of Chinese talent in Hong Kong is still small, with construction practices facing the same difficulties most law firms have now across all their practice areas. Construction has traditionally been viewed as a more "dirty" area of practice, and with the lure of more sexy and topical practice areas, such as corporate work, construction firms are finding it hard to recruit.

Most of the internationals in China at the moment are being consulted on FDI projects in the PRC and are also helping Chinese construction companies abroad. Bishop says at last count, Masons was helping firms in 20 diverse overseas locations. Local firms are handling more of the domestic projects, with no foreign element involved.

Howlett says there is not too much competition from Mainland firms. He says these firms are not "hugely sophisticated" in terms of construction work, and do not usually divide their business to have a separate construction practice but instead tend to cover everything. Some of the stronger real estate-focused firms do more of this work, such as Gen Wei in Shanghai, and Lei Wen and Fang Da in Beijing.

The SE Asia conundrum
South-east Asia continues to lag behind other Asian markets and its own potential, with the effects of the crippling financial crisis of the late 1990s still very clearly felt.
"South-east Asia is in the doldrums," Howlett says.

Despite the need for new construction projects to build much-needed infrastructure in the region, banks were burned heavily during the financial crisis, and there is much reluctance from the private sector to provide financing and investment for new projects. Governments also lack finance, and see the political risk as too high.

In Singapore, the construction industry peaked in 1997 with about S$24bn in contracts awarded, says Chia Ho Choon, partner of KhattarWong. This was down last year to S$11bn, though there is talk of contracts in the vicinity of S$12bn to S$15bn this year. Though this is indicative of the shock caused by the crisis to new investments, some are cautiously optimistic about South-east Asia and its growth potential.

Bishop says although a boom will not happen again, there are signs of growth in the varied markets of Singapore, Thailand, Vietnam, Malaysia and Indonesia. "The difficult days are now behind us and signs of life are returning to the construction industry," says George Tan, partner with Singapore law firm TSMP.

"In Singapore there has been an aggressive pick-up in collective sales which translate into new building projects, particularly, in the high-end areas. The result for construction lawyers is a lot more front-end work, with less growth in litigation and arbitration," he continues. This is a good development for the industry, and subsequently the legal profession, as it provides a better environment for clients to stay viable, adds Tan.

Professional Private Partnerships have created a buzz in the region in recent times, and there is hope the growth of PPPs could continue and create more non-contentious work. There is much talk of such work in Indonesia, though not much action as yet.

"PPPs are still fairly new in the region but not so new that they are completely unknown to decision-makers - we should see a lot more PPPs going forward and as long as that improves liquidity in the funding of projects it is good for industry players," says Tan. "It should also generate a fair bit of non-contentious construction work for lawyers," he adds.