Suppliers and contractors working in Abu Dhabi are now starting to experience similar cash flow problems similar to those experienced in Dubai since 2009 as clients in the capital delay payments, leaving contractors and suppliers fearing they may not be paid at all.

The cash flow crisis follows a marked decline in the value of construction and infrastructure contracts awarded this year as the government slows down many of its planned development projects in an attempt to control the emirate’s $104bn debt pile. The total value of construction and infrastructure contracts awarded in Abu Dhabi during the second quarter of this year has fell by 81 per cent to $843m (MEED 29:7:11).

“Abu Dhabi has always been bad when it comes to payment. Contractors traditionally delayed payments for months,” says a local supplier. “What is happening now is different. You get the sense you won’t get paid at all. I have gone to two companies this week and they have just disappeared. The office is closed and there is a note of the door telling you where the new office is. When you go there you find out it’s a bogus address. They have just gone. This is happening time and time again.”

The supplier says that contractors are unable to pay as they are not being paid by their clients, and with unreliable cash flows, companies are wary of giving any guarantees of payment to their suppliers. “The last few months we have noticed a lot of contractors have stopped giving post-dated cheques,” says the supplier. “Instead they give payment plans that are signed with a company stamp, but aren’t legally binding. In the UAE, without a post-dated cheque, you don’t really have any guarantee that you will be paid.”

Contractors and suppliers complain that many of the cash flow problems are from slow payment on Tourism Development & Investments Company (TDIC) projects. It is one of the most active clients in Abu Dhabi and is completing major projects in Abu Dhabi city, on Saadiyat Island and the Western Region before the end of this year.

“There are growing payment problems. The issues have developed over the past couple of months with TDIC,” says a contractor working for TDIC. “It is not a case of non-payments. There are delays in certification so we have quite a lot of payment outstanding right now. It is a large amount of money, but it is not as bad as it was in Dubai yet. We hope it doesn’t end up like that.”

Another contractor working on different scheme for TDIC also says that payments slowed down about two months ago. “There are delays, it is a fairly recent issue, it started about two months ago. It is not performance-related, so we are not sure what is happening,” he says.

TDIC says it is working closely with contractors to make sure timely payments are made. “We will continue to work closely with our contractors and suppliers to ensure timely payments are made according to delivery milestones and we appreciate their ongoing dedication to completing these high-profile projects.”

While payment is a problem for contractors working on real-estate projects, for the oil and gas sector, which remains the bedrock of Abu Dhabi’s economy, getting paid is not a problem. “Payments are regular and on time for our work on oil and gas projects. We have no complaints,” says a local contractor.

Suppliers also say that they do not experience the same payment problems on oil and gas projects as they do on construction schemes. “Oil and gas is good, in fact we have a number of clients in that sector that pay in advance, to make sure the deliveries are made,” says the supplier.

Outside oil and gas, contractors and suppliers fear that the downturn in the market will mean payment will be an ongoing issue throughout 2012 and beyond, just as it still is in Dubai. “There is a perception that Abu Dhabi is where the money is and the streets are paved with gold. That is not the case, it was never a good place for payments, but right now we feel we won’t get paid at all,” says the supplier.