Price falls will prompt delays in Gulf construction sector

The trend of clients retendering contracts in the hope of securing lower bids on their projects has become an increasingly common feature of the Gulf construction market.

Costs are certainly falling in many areas, according to the latest industry data from UK-based construction cost consultant Davis Langdon. But while clients benefit, contractors are suffering.

The delays in awarding contracts are frustrating their efforts to refill their dwindling order books.
There are glimmers of hope for contractors. Some clients at least have decided that costs have fallen far enough from their peaks to make it worthwhile to now press ahead with their schemes.

One is Saudi Aramco Total Refinery & Petrochemical Company (Satorp), a joint venture of Aramco and France’s Total, which finally announced the winners of 13 construction contracts for the Jubail refinery complex on 18 June. Cost estimates had been cut by about 20 per cent from the previous year’s bids.

But this is the exception rather than the rule in today’s market, and most clients are content to wait. Unless there is a pressing need for their planned projects to go ahead - and in the real estate market at least, that is rarely the case - they are content to continue drawing out the award process as much as possible.

They are being encouraged in this by changes in items such as wages for expatriate engineers in the UAE, which dropped by an average of 5 per cent between March and June 2009 to $11,200 a month.

Clients are hoping prices will continue to fall through the rest of the year and contractors will be prepared to drop their bids even further as a result. Until prices start to stabilise, there is little chance that clients will feel the need to speed up their decisions on contracts.