Abu Dhabi to limit project spending

26 July 2011

Contractors will be in a difficult position due to the growing trend of cancelled or downsized projects. Non-oil economy is likely to continue to underperform

The growing trend of cancelling projects, delaying and retendering contracts in Abu Dhabi is a frustrating experience for contractors. Construction companies frequently spend millions of dollars preparing tenders in the hope of winning new work.

Competitive tenders are a calculated risk, and contractors are well used to sizing up the competition and gauging their chances of winning. What they are not so used to is contracts not being awarded at all.

Factoring in this additional risk means that some firms are no longer prepared to take part in tenders and the recent decision by major international contractors to walk away from the midfield terminal tender at Abu Dhabi International airport is a sign that for some, the risks are now too great.

On the other side of the client-contractor divide, Abu Dhabi has to assess its own risks. With its non-oil economy growing slower than expected, and ballooning state spending, the authorities have to determine whether its planned infrastructure schemes are still needed. Predicting the future is never easy and often the best option is to delay decisions, and that is what Abu Dhabi has done over the past year.

Eventually, a decision will have to be made, and as the global economic outlook remains challenged with problems in Europe and the US, Abu Dhabi’s non-oil economy is likely to continue to underperform. This means many of the projects that are currently being tendered or planned could be cancelled or downsized.

Contractors and other companies hoping to work on these schemes will be in a difficult position. Oil prices are still close to $100 a barrel and Abu Dhabi’s revenues remain strong.

Even though many schemes will be slow to move forward, billions of dollars of work will still be awarded, and contractors would be foolish to walk away from Abu Dhabi completely. They just have to remember that if they stay, then many will have to accept that they could end up being disappointed.

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